Short Term Capital Gain Tax

Short-Term Capital Gains (STCG) are profits earned from selling assets like stocks, mutual funds, or property within a short period, typically less than 12 months for shares and 24 months for real estate. For listed equity shares and equity-oriented mutual funds, STCG was previously taxed at 15% under Section 111A (before July 2023, 2024). However, from July 23, 2024, this rate has increased to 20%. No deductions under Sections 80C to 80U are allowed on STCG. For other assets, gains are taxed as per your income slab.

Understanding STCG is essential for taxpayers to manage their financial planning efficiently. This article will explain the concept of short-term capital gain tax, applicable rates, calculation methods, exemptions, and strategies to minimise tax liability.

What is short-term capital gains tax?

Short-term capital gains tax (STCG) applies to profits earned from selling capital assets within a short duration. The holding period criteria vary based on asset types:

• Listed equity shares and equity-oriented mutual funds: Less than 12 months.
• Unlisted shares and real estate: Less than 24 months.
• Other capital assets: Holding period defined based on category.

STCG is calculated as the difference between the selling price and purchase price, excluding brokerage fees or transaction costs. Taxpayers must pay this tax based on their applicable income tax slabs, except for specific asset classes where a fixed rate applies.

How do short-term capital gains taxes work?

When you sell assets such as shares, mutual funds, or property for more than the purchase price, the profit is called a capital gain. In India, capital gains are divided into two types based on how long you held the asset: short-term and long-term. If you sell listed equity shares, equity mutual funds, or units of business trusts within one year of buying them, the gains are considered short-term.

To calculate a capital gain, subtract the buying price (also known as the cost of acquisition) from the selling price. If this transaction happens within a year, the profit is taxed as a short-term capital gain.

As per the Union Budget 2024, the short-term capital gains tax rate under Section 111A has increased from 15% to 20%, effective from 23rd July 2024. This applies only when Securities Transaction Tax (STT) has been paid on the sale of listed equity shares, equity-oriented mutual funds, or units of business trusts. In addition to the 20% tax, applicable surcharge and health & education cess are also added.

For other types of assets like unlisted shares, real estate, gold, and debt mutual funds, short-term capital gains are not covered under Section 111A. Instead, the gains are added to your total income and taxed according to your income tax slab.

If you sell an asset for less than what you paid for it, the loss is called a short-term capital loss. You can use this loss to offset other capital gains in the same year, or carry it forward for up to eight years to adjust against future gains.

You must report all such gains and losses in your Income Tax Return (ITR) under Schedule CG. There is no separate form like in some other countries.

If you are investing through tax-exempt tools such as Public Provident Fund (PPF) or Employees’ Provident Fund (EPF), capital gains tax doesn’t apply. However, if you are actively trading in the stock market through a regular trading or Demat account, STCG tax becomes applicable.

What are short-term capital assets?

Capital assets are categorised as either short-term or long-term based on the duration for which they are held before being transferred. The holding period determines the applicable tax treatment for any gains arising from the transfer.

Effective from 23rd July 2024, the holding periods for different types of capital assets are as follows:

Asset type	If transferred before 23rd July 2024	If transferred on or after 23rd July 2024	Example
Listed equity shares, equity-oriented mutual funds, units of business trusts, and zero-coupon bonds	● Short-term if held for up to 12 months ● Long-term if held for more than 12 months	No change – remains the same as before	If you buy a company’s shares on 1 Jan 2024 and sell on 1 Aug 2024, it is a short-term capital gain. If sold after 1 Jan 2025, it's a long-term capital gain.
Unlisted shares, land, and buildings	● Short-term if held for up to 24 months ● Long-term if held for more than 24 months	No change – remains the same as before	If you buy a plot in April 2022 and sell in March 2024, the gain is short-term. If sold in May 2024, it becomes long-term.
All other capital assets (such as gold, jewellery, etc.)	● Short-term if held for up to 36 months ● Long-term if held for more than 36 months	● Short-term if held for up to 24 months ● Long-term if held for more than 24 months	If you buy gold in July 2023 and sell it in August 2025, it is a long-term capital gain under the new rules. Earlier, you had to hold till July 2026 for the same.

 

Tax rates for short-term capital gains tax

Asset class	Tax rate
Listed equity shares & equity-oriented mutual funds (until July 22, 2024)	15%
Listed equity shares & equity-oriented mutual funds (from July 23, 2024)	20%
Unlisted shares, real estate, and other assets	Taxpayer's applicable income tax slab rate (0% to 30%+)

The Union Budget 2024 revised the STCG rate for financial assets, increasing it from 15% to 20% for transactions occurring on or after July 23, 2024.

Calculating short-term capital gains tax

To determine STCG, follow these steps:

• Determine selling price: Price at which the asset is sold.
• Determine purchase price: Cost incurred to acquire the asset.
• Subtract transaction costs: Deduct brokerage fees, commissions, or other associated costs.
• Apply tax formula:
• ShortTermCapitalGain = SellingPrice−PurchasePrice−AssociatedCosts

For instance, if an investor buys an asset for Rs. 1,000 and sells it for Rs. 1,500, incurring Rs. 50 in costs, the STCG is Rs. 450.

Short-term capital gain example

Let us assume Anita purchased a residential property in 2024 for Rs. 35 lakh and sold it in 2025 for Rs. 80 lakh. Since the property was sold within 24 months of purchase, it is classified as a short-term capital asset under the updated rules effective from 23rd July 2024. Therefore, the gain will be treated as short-term capital gain (STCG) and taxed at Anita’s applicable income tax slab rate.

Particulars	Amount (Rs.)
Full value of consideration	80 lakh
Less: Expenses incurred wholly and exclusively for such transfer	Nil
Net sale consideration	80 lakh
Less: Cost of acquisition	35 lakh
Less: Cost of improvement	Nil
Short-term Capital Gain (STCG)	45 lakh
Less: Exemptions under Section 54B / 54D	Nil
Short-term Capital Gain chargeable to tax	45 lakh

 

Short-term capital gain tax on shares

Short-Term Capital Gains (STCG) tax applies when capital assets are sold within a specified holding period. These rules vary depending on the type of asset and have been updated recently to reflect changes introduced in the Budget 2024.

• Listed equity shares are treated as short-term capital assets if sold within 12 months of purchase.
• For unlisted equity shares, the holding period to determine STCG is less than 24 months.
• Gains from the sale of these assets are taxed as:
• 20% (plus surcharge and cess) under Section 111A for listed shares (where STT is paid), effective from 23rd July 2024.
• Unlisted shares are taxed at the individual’s applicable income tax slab rates.

Short-term capital gain tax on property

• If a residential or commercial property is sold within 24 months, the profit is classified as short-term capital gain.
• Such gains are added to your total income and taxed at your normal income tax slab rates.
• Indexation benefits are not available on short-term capital gains from property sales.

Short-term capital gain tax on mutual funds

If the units were transferred before 23rd July 2024:

• Specified Mutual Fund units were classified as short-term or long-term based on a 36-month holding period (except equity-oriented funds).
• STCG was taxed at the investor’s slab rate.

If the units are transferred on or after 23rd July 2024:

For Specified Mutual Funds (investing 65% or more in debt or money market instruments):

• STCG applies irrespective of the holding period.
• Gains are taxed as per your income tax slab.
• This rule is applicable only to units acquired on or after 1st April 2023.
• Units acquired before this date continue to be taxed based on the original holding period rules.

Short-term capital gain tax on debentures and bonds

From 23rd July 2024, gains from the transfer of:

• Market-linked debentures, and
• Unlisted debentures or bonds

are always treated as short-term capital gains, regardless of the holding period.

These gains are taxed at slab rates, and indexation is not available.

Short-term capital gain tax on ULIPs and others

ULIPs with:

• Premiums exceeding 10% of the sum assured, or
• Annual premiums above Rs. 2.5 lakh

are now treated as capital assets.

• Income from such ULIPs on redemption is taxed as capital gains.
• An amendment to Section 2(14) also clarifies that securities held by investment funds (u/s 115UB) will be treated as capital assets, and gains on them will attract capital gains tax.

Exemptions and deductions applicable to STCG

Unlike long-term capital gains tax, STCG does not qualify for exemptions under Sections 54B or 54D of the Income Tax Act. Every rupee earned as short-term capital gains is taxable without any deductions. However, investors can adjust short-term capital losses against short-term or long-term capital gains to reduce taxable income.

Impact of recent tax reforms on short-term capital gains tax

The 2024 Union Budget introduced an increase in STCG rates for equity-based investments. This change is expected to:

• Discourage short-term trading and speculation
• Encourage long-term investments
• Generate higher tax revenues for the government

Investors now have a greater incentive to hold investments for longer periods to avail themselves of lower long-term capital gains tax rates.

Short-term capital gains tax on various asset classes

Asset class	Holding period	Tax rate
Listed equity shares	< 12 months	20% (from July 23, 2024)
Equity-oriented mutual funds	< 12 months	20% (from July 23, 2024)
Unlisted shares	< 24 months	Taxpayer's slab rate
Real estate	< 24 months	Taxpayer's slab rate

 

Strategies to minimise short-term capital gains tax liability

• Hold investments longer: Avoid STCG tax by transitioning to long-term holdings.
• Offset gains with losses: Reduce taxable gains using short-term capital losses.
• Invest in tax-advantaged accounts: Use investment vehicles offering tax benefits.
• Plan sales strategically: Sell assets in financial years with lower overall income.

Applying these strategies helps investors lower tax burdens while optimising investment returns.

Filing short-term capital gains tax in India

• Maintain accurate records: Track purchase and sale details.
• Calculate total gains/losses: Sum all short-term gains and adjust for losses.
• Include in income tax return: Report STCG under capital gains section.
• Use appropriate forms: Select the correct ITR form based on income sources.

Filing taxes accurately ensures compliance with tax laws and prevents unnecessary penalties.

Short-term capital gains tax is a crucial component of financial planning for investors. With recent tax reforms increasing STCG rates, individuals must strategically manage their investments to optimise returns and reduce tax liabilities.

How to minimise short-term capital gains taxes

Minimising short-term capital gains (STCG) tax in India requires strategic planning, especially in light of recent tax reforms introduced in the Union Budget 2024. Here are effective and up-to-date strategies to help reduce your STCG tax liability:

1. Hold investments longer to qualify for long-term capital gains (LTCG) rates

The STCG tax rate for listed equity shares and equity-oriented mutual funds has increased from 15% to 20% as per the Union Budget 2024. By holding these investments for more than 12 months, you can benefit from the LTCG tax rate of 12.5% (after Rs. 1.25 lakh), which is lower than the STCG rate. For other assets like real estate and unlisted shares, holding them for over 24 months qualifies them for LTCG taxation.

2.  Utilise tax-loss harvesting

Offsetting gains with losses is an effective way to reduce taxable income. If you have investments that have declined in value, consider selling them to realise a loss, which can then be used to offset your short-term capital gains. This strategy, known as tax-loss harvesting, can lower your overall tax liability.

3. Optimise the timing of asset sales

Planning the timing of your asset sales can significantly impact your tax liability. If you are approaching the threshold for LTCG classification (12 months for listed equities, 24 months for other assets), it may be beneficial to delay the sale to qualify for the lower LTCG tax rate.

4. Leverage the one-time set-off provision for long-term capital losses

The new Income Tax Bill 2025 introduces a one-time provision allowing long-term capital losses (LTCL) incurred up to March 31, 2026, to be set off against short-term capital gains from the tax year 2026–27 onwards. This change provides an opportunity to reduce your STCG tax liability by utilising accumulated LTCL.

5. Consider joint ownership for property investments

In the case of property sales, joint ownership can help in tax planning. By co-owning property, the capital gains can be split among the owners, allowing each to utilise their individual exemption limits and potentially fall into lower tax brackets, thereby reducing the overall tax burden.

6. Invest in tax-advantaged instruments

While deductions under Sections 80C to 80U are not applicable to STCG under Section 111A, investing in tax-saving instruments like Equity-Linked Savings Schemes (ELSS) can provide deductions under Section 80C, reducing your overall taxable income. This strategy doesn't directly reduce STCG but can lower your total tax liability.

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How to set off long-term and short-term capital losses against capital gains in FY 2025-26

If you have made a loss from the sale of shares, property, mutual funds, or other capital assets in Financial Year 2025–26, you may be able to use that loss to reduce your overall tax liability. The Income Tax Act allows you to set off such capital losses against capital gains, helping you save on taxes by adjusting losses against profits from other investments. This process is governed by specific rules that distinguish between short-term and long-term capital losses and gains.

Understanding how to classify your assets, calculate the holding period, and apply set-off provisions correctly is crucial for accurate tax reporting. Recent updates from the Union Budget 2024 and proposed changes in the Income Tax Bill 2025 also introduce new provisions, such as a one-time relief allowing long-term capital losses to be set off against short-term capital gains from Assessment Year 2026–27.

Let us understand these rules and see how you can set off long-term and short-term capital losses against capital gains in FY 2025-26.

Classification of income for taxation

In India, income is categorised under five heads for taxation purposes:

• Income from salary
• Income from house property
• Profits and gains from business or profession
• Capital gains
• Income from other sources

Capital gains arise from the sale of capital assets, including shares, mutual funds, real estate, gold, and bonds. These gains are further classified based on the holding period of the asset.

Capital gains and holding period

The classification of capital gains into short-term and long-term depends on the duration for which the asset is held before sale. The holding periods have been streamlined as per the Union Budget 2024:

Asset type	Short-term capital asset	Long-term capital asset
Listed equity shares, equity-oriented mutual funds, units of REITs	Held for up to 12 months	Held for more than 12 months
Unlisted equity shares, land, and buildings	Held for up to 24 months	Held for more than 24 months
Debt mutual funds (units acquired before 1 April 2023)	Held for up to 36 months	Held for more than 36 months (with indexation)
Debt mutual funds (units acquired on or after 1 April 2023)	Always treated as short-term	Not applicable
Market-linked debentures, unlisted bonds (from 23 July 2024)	Always treated as short-term	Not applicable

Note: Indexation benefit is allowed only for long-term capital gains on eligible assets acquired before 1 April 2023. For debt funds purchased after that date, LTCG classification no longer applies—gains are taxed as short-term, regardless of holding period.

Set-off of capital losses

Taxpayers can reduce their taxable capital gains by setting off capital losses as per the Income Tax Act. Here’s how the rule works:

• Short-Term Capital Loss (STCL) can be set off against both:
  • Short-Term Capital Gains (STCG)
  • Long-Term Capital Gains (LTCG)
• Long-Term Capital Loss (LTCL) can be set off only against LTCG. It cannot be adjusted against short-term capital gains.

If your loss cannot be fully adjusted in the same financial year, you are allowed to carry forward the unadjusted portion for up to 8 assessment years, provided your Income Tax Return (ITR) is filed within the due date.

This rule helps investors manage their tax liabilities more efficiently by using past losses to balance out future gains.

Misconceptions about set-off of losses

The new Income Tax Bill 2025 introduces a special one-time set-off opportunity for long-term capital losses. Here's what you need to know:

• What’s new: Long-term capital losses (LTCL) incurred up to 31st March 2026 can be set off against short-term capital gains (STCG) in future years.
• When it applies: This provision becomes effective from Assessment Year 2026–27 onwards.
• Key benefit: Under existing rules, LTCL can only be adjusted against LTCG. This one-time relief allows greater flexibility for taxpayers who have accumulated LTCL but lack sufficient LTCG to set them off.
• Not a recurring provision: This benefit is available only once, for losses realised up to 31st March 2026. Losses incurred thereafter will continue to follow the standard set-off rules.

This amendment is particularly helpful for investors who suffered long-term losses but are now earning more from short-term gains, especially in volatile markets.

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Conclusion

Understanding the short-term capital gain (STCG) rate is essential for managing your tax outgo, especially if you are planning big financial moves like buying a house. STCG is taxed at slab rates for most assets, while listed equity gains attract a 20% rate (post-Budget 2024). If you are selling investments to make a down payment on a home loan, timing your sale wisely could reduce your tax burden. Set-off provisions and one-time relief options can also help. Smart tax planning ensures you retain more capital, giving you better leverage when applying for a home loan or planning EMIs confidently and efficiently.

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