All You Need To Know about Short-Term Capital Gains Tax

Short-term capital gains mean income amassing from an asset for a short time. STCG tax rates vary according to the nature of an asset, the holding period, and consequently, the taxpayer's income.

What is Short-term Capital Gains?

Short-term capital gains (STCG) refer to the profits earned from the sale of a capital asset, such as stocks, bonds, mutual funds, or real estate, that has been held for a period of less than 36 months (3 years) or 12 months (1 year) in case of securities (like shares, debentures, etc.) and units of UTI, Mutual Funds.

Short-term capital gains on shares (STCG) tax

When you trade on a recognized stock exchange within 12 months from the date of acquisition, realize that any benefit is a short-term capital gain (STCG). When shares are sold on a stock exchange and securities transaction tax (STT) is paid, STCG is charged at 15% according to Section 111A of the Income Tax Act.

Short-term capital gains (STCG) tax on mutual funds

For equity mutual funds, when redeemed in less than 12 months, STCG is charged at 15% (according to Section 111A). For debt mutual funds, STCG is included in your income, and tax is levied according to your income tax slab rate.

Short-term capital gains (STCG) Tax on Property

If you sell a property within 24 months of receiving it, the profit is considered a short-term capital gain and is charged according to your income tax slab rate.

Short-Term Capital Gains Tax Rules

A short-term capital gain tax is applied to the profit when one sells off an asset that's been in possession for a lesser duration. The qualifier ‘short-term' can be defined differently depending on the type of instrument:

• For Equity Shares and Equity-Oriented Mutual Funds, any position held for 12 months or less should qualify as a short-term capital gain.

• For Debt Mutual Funds and Real Estate, a holding period of fewer than 36 months shall mean them to be short-term capital gains.

Short-Term Capital Gains (STCG) Tax Rates

• STCG tax on shares

• STCG tax on mutual fund

• STCG tax rate on property and more explained below through this table:

Tax rates depend upon the holding period and the income level of the taxpayer. Hence, let's see the particulars of individual taxing across asset classes.

How Much of Short-Term Capital Gain is Tax-Free?

As compared to long-term capital gains which are exempt up to ₹1.5 lakh in case of equity investments, no exemption limit is available for STCG. STCG is taxed in full and the tax payable varies based on the asset class and holding period, as discussed above.

STCG Tax Exemption Limit and Deductions

Even though there is no exemption limit on STCG directly, tax is minimized by taking deductions under Income Tax Act's Sections 80C to 80U. Capital losses too are exempted to be adjusted against capital gains:

Short-term capital losses can be matched against short-term and long-term capital gains, which will come as a welcome relief.

Unutilized losses can be forwarded for eight years and matched against future capital gains.

Significant Changes in STCG Tax Rates for 2025

Up to now, there have been no major announcements in the STCG tax rate of 2025.

Taxpayers should still keep themselves updated with the Union Budget announcements as the government might make new announcements or change the existing tax rates.

Tips to Reduce STCG Tax Liability

1. Hold Assets for Long-Term : Convert short-term profits to long-term profits by holding assets in hand for a period of one year or longer. For example, hold equity shares for more than 12 months to get lower LTCG (Long-Term Capital Gains) tax rates.

2. Offset Losses with Gain : Utilize gains on capital and offset losses on capital in an attempt to reduce your cost of taxes.

3. Invest in Tax-Saving Instruments : Use deductions under Sections 80C to 80U so that your tax outlay is reduced.

4. Plan Your Sales Strategically : Schedule your sales at the right time to get the maximum possible tax burden. For instance, selling assets in a fiscal year when your income is smaller will generate lower tax brackets and low tax burden.

5. Utilize Basic Exemption Limit : If your total income, including STCG, is below the basic exemption limit (for instance, ₹2.5 lakh in case of below 60 years), you may not need to pay even a rupee of tax on your STCG.

Calculating Short-Term Capital Gains

Accurately computing STCG involves a systematic approach. The following table outlines the components involved in the calculation:

Illustrative Example to Calculate STCG

Following example:

Mr. A is selling equity shares of ₹5 lakh in 8 months and makes a profit of ₹1 lakh. Because the shares have been sold in 12 months, the gain is short-term. STCG tax on equity shares is 20%. Tax Payable will be = ₹1,00,000 x 20% = ₹15,000.

Comparison Table of Tax Rates for LTCG and STCG for the Financial Years 2023-24 and 2024-25

The Union Budget 2024-25 introduced notable changes to the taxation of capital gains in India. Below is a comparison of the tax rates and holding periods for short-term and long-term capital gains for the financial years 2023-24 and 2024-25:

Changes Made Under Budget 2024-25

• Short-Term Capital Gains (STCG): Short-term capital gain tax on equity shares listed and equity-oriented mutual fund units raised from 15% to 20%.

• Long-Term Capital Gains (LTCG): The rate for long-term capital gains on all assets has been harmonized at 12.5%, applying to income in excess of ₹1.25 lakh, higher than the old ₹1 lakh exemption threshold.

• These changes tend to simplify the capital gains tax regime and promote long-term investment. Investors need to review their portfolios against these changes to maximize tax efficiency.

The Impact of STCG tax on SIPs

The Union Budget often brings about changes that can affect tax regulations, especially about the tax on short -term capital gains (STCG) for systematic investment schemes (SIPs). Here is how the budget can affect STCG tax on SIPS:

1. STCG tax rate: Currently, equity investment in equity mutual funds is taxed at 15% on STCG if the holding period is less than 1 year.

2. Rebate limitations: Budget can also change the boundaries related to capital gains, such as increasing the threshold for tax-free profit. This change SIP will affect investors who decide to sell their mutual fund units before reaching a 1 -year holding period.

3. Securities transaction tax (STT): Budget can address amendments in STT, which can indirectly affect STCG tax. Increase in STT can increase trade costs for investors, affecting overall tax results.

4. Taxation of loan fund: If there are adjustments in taxation of the loan fund, it can be implications for SIPs in those funds. For example, if the holding period STCG for date funds SIPS is extended to qualify for tax benefits, investors may be encouraged to maintain their investment for long periods.

5. Changes in tax-deprived accounts: Budget National Pension Scheme (NPS) or specific tax-made SIP can also initiate or modify tax-up accounts, which can provide tax deduction or discount on capital gains.

Conclusion

Understanding STCG tax is essential in financial planning. For 2025, STCG tax rates are the same as earlier, where equity investments are taxed at 20% and other investments taxed as per the income slab of the taxpayer. There is no limit on exemption of STCG, but taxpayers can adjust and deduct capital losses to lower their tax.

Keep yourself up to date on any new taxation laws and employ the services of a financial advisor to maximize your investments while keeping yourself within tax limits. Good planning will work to maximize your returns and keep your tax burden in check big time.

By being current on STCG tax rules and rates, you can have a better idea of what type of investment is best for you and stay on top of taxes. Whether you invest in stocks, mutual funds, or property you need to know how tax will affect your bottom line.