Short-Term Capital Gains Tax for FY 2024-2025

What is Short Term Capital Gains Tax?

Short-Term Capital Gains Tax (STCG) is a tax levied on the profit you earn from selling capital assets held for a short period of 12 months.

The short-term holding period for listed securities is 12 months and 24 months for unlisted shares and non-financial assets, as provided by the Union Budget 2024. 

All STCGs are added to your total income and taxed at the applicable income tax slab rates (plus surcharge and cess).

NOTE: Profits from selling depreciable assets are always treated as short-term capital gains for tax purposes.

Short-Term Capital Asset Holding Periods

*The Union Budget 2024 decreased the holding period for non-financial assets to qualify for LTCG category from 3 to 2 years.

Exclusions From the Definition of Short Term Capital Assets

The following capital assets are not considered as “capital assets” for the purpose of Short Term Capital Gains Tax:

• Stock-in-trade (except specified securities), consumables, and raw materials for business.

• Personal effects that include movable property for personal use (except artwork, jewellery, archaeological artefacts, etc.)

• Agricultural land in India (except specific exclusions based on population and distance criteria)

• Excludes the various gold bonds launched by the Government of India. 

Short Term Capital Gains Tax in FY 2024-25 (AY 2025-26)

*The Union Budget 2024 has increased the STCG on these financial assets from 15% to 20%.

**The holding period for property, debt and debt-oriented securities, and other non-financial assets is rationalised to 24 months by the Union Budget 2024.

Calculation of Short Term Capital Gains (STCG)

The calculation of short-term capital gains from the sale of a short-term capital asset can be understood from the following illustration:

Suppose in December 2022, you purchase gold jewellery as per the following details:

• Gold Purchase Price (December 2022): Rs. 8,40,000

• Gold Selling Price (August 2023): Rs. 9,00,000

• Brokerage Paid: Rs. 10,000

• Holding Period: 8 months (less than 24 months)

Calculation of Short-Term Taxable Capital Gain

Short Term Capital Gains under Section 111A of the Income Tax Act, 1961

The short term capital gains from the transfer of the following assets are covered under Section 111A of the Income Tax Act, 1961:

• Transfer of equity shares

• Transfer of units of equity-oriented mutual funds

• Transfer of units of business trusts

NOTE: The transfer must occur on or after October 1, 2004, through a recognized stock exchange. Also, the transaction must be subject to Securities Transaction Tax (STT).

Definition of Equity Oriented Mutual Fund under Section 111A of the IT Act

• These market-linked assets are defined as mutual funds specified under section 10(23D).

• 65% of its investible funds must be in equity shares of domestic companies.

Union Budget 2024 Updates for Taxation on STCG under Section 111A of the Income Tax Act

• STCG covered under Section 111A is taxed at 20% plus applicable surcharge and cess.

• The STCG tax is increased to 20% from the previous 15% under the recent Union Budget 2024.

Short Term Capital Gains Not Covered under Section 111A of the Income Tax Act, 1961

The following Short Term Capital Gains from the following capital assets are exempted from Section 111A of the Income Tax Act, 1961:

• Equity shares via unrecognized stock exchanges

• Selling non-equity shares

• Non-equity Mutual Funds

• Selling bonds, government securities, and debentures

• Selling immovable property, silver, gold, etc.

Taxation on STCG Not Covered under Section 111A of the Income Tax Act

The Short Term Capital Gains not covered under Section 111A of the Income Tax Act, 1961 are classified as normal short-term gains. These capital gains are taxed as per your income tax slabs as per your chosen Old vs. New Tax Regime for FY 2024-25 (AY 2025-26).

Tax Benefits on Short Term Capital Gains Tax (STCG Tax)

Let us understand the tax deductions allowed on Short Term Capital Gains Tax in India:

• No deductions under Section 80C to 80U allowed for short-term capital gains under Section 111A of the IT Act.

• Deductions under Section 80C to Section 80U are applicable for STCG not covered under Section 111A.

In Summary

Short-Term Capital Gains Tax is a tax levied on profits from the sale of assets held for a short duration. This tax is typically higher than long-term capital gains tax and serves as a mechanism to generate revenue for the government. Investors should be mindful of the implications of short-term capital gains tax when engaging in quick asset turnover, as it can impact overall returns on investment. Understanding and planning for these tax implications is crucial for making informed financial decisions in the short-term investment landscape.