An investor receives profits from selling capital assets in their possession, and these profits are called capital gains. Capital assets include jewellery, land, house property, equity shares, machinery, patents, etc.
As the profit you obtain is part of your earnings, under the Income Tax Act of 1961, you are liable to pay a tax on capital gains. Depending on the period for which an investor holds onto their assets, capital gains are of two types: short-term capital gains and long-term capital gains.
If you decide to add these profits to your income, these two categories will incur different taxes. This article will expand on the tax on short-term capital gains.
Generally, any property that an individual holds for investment or personal use that generates some value over a short period is known as a short-term capital asset. Moreover, securities owned by an investor, adhering to SEBI guidelines, also fall in this category.
However, there are a few exceptions, like the following:
If an investor holds the assets mentioned above for a period of 36 months or less and then redeems the profit, they will incur short-term capital gains tax. However, for immovable assets, like land, buildings, or house property this holding period reduces to 24 months. Meanwhile, if you invest in equity funds for less than 12 months, the capital gains will attract SCGT tax.
The calculation of short-term capital gains can be understood through this easy formula:
STCG = Total gains – (improvement cost + transfer cost + acquisition cost)
For the purpose of taxation, short-term capital gains can be categorised as follows:
The short term capital gains that fall under this category are given below:
The STCG that fall under this category are given below:
Tax Rates on STCG
Depending on the nature of assets, as noted above, one will be subject to different tax rates on short-term capital gains.
|Nature||Rate of Taxation|
|When transaction tax on securities is applicable||15% (adding surcharge and cess)|
|When transaction tax on securities is not applicable||Capital gains get added to the taxpayer’s total income. Thus, tax is estimated based on the income slab.|
Also Read: Section 111A Of The Income Tax Act
Let’s consider an example to understand the calculation of STCG tax and how it applies to your income.
Rahul, an Indian resident, works as a data analyst and earns an annual salary of Rs. 9,20,000. Two years ago, he purchased 100 shares of Tata Consumer Products Ltd at Rs. 400, trading on BSE. Yesterday, he sold them at Rs. 650 per share.
Thus, Rahul’s total short-term capital gain is:
Rs. 65,000 (650 x100) – Rs. 40,000 (400×100) = Rs. 25,000
Now, let’s see how Rahul’s total taxable income will be computed.
|Annual salary||Rs. 9,20,000|
|Short-term capital gains||Rs. 25,000|
|Gross total income||Rs. 9,45,00|
|Deductions under Section 80C to Section 80U||NIL|
|Tax on annual salary||Up to Rs. 2,50,000 — NILRs. 2,50,000 – 5,00,000 @ 5% = Rs. 12,500Rs, 5,00,000 – 9,20,000 @20%= Rs. 84,000|
Total tax on salary = Rs. 96,500
|Tax on STCG||15% of Rs, 25,000 = Rs. 3,750|
|Total tax on income||Rs. 1,00,250|
|Health and Education cess||4% of Rs. Rs. 1,00,250 = Rs. 4,010|
|Total tax liability||Rs. 1,00,250 + Rs. 3,750 = Rs. 1,04,000|
Meanwhile, if your capital gains are from sources outside those covered under Section 111A, you can opt for deductions under Section 80C to Section 80U.
Before investing in any asset and deciding when to sell, it is crucial to know the tax implication that your asset carries. This tax system has its own pros and cons and can majorly impact your after-tax income. So, if you are thinking of holding an asset for less than 36 months, you should make yourself aware of short-term capital gain tax.
1. What is the STCG tax rate on selling the equity shares through an unrecognised stock exchange?
Sale of equity shares through an unrecognised stock exchange does not fall under Section 111A of the Income Tax Act. Thus, it does carry securities transaction tax. So, if you decide to sell off these shares within 12 months, the capital gains will be taxable as per your income slab.
2. Who all have to pay Income tax in India?
In India, any citizen below the age of 60 has to pay income tax if their annual income is above Rs. 2.5 Lakh. For those above the age of 60, the minimum income is Rs. 3 lakh.
3. What is securities transaction tax?
When one buys or sells securities listed on a recognised stock exchange, they incur Securities transaction tax. It was introduced in the Union Budget 2004 and is a type of direct tax. For example, when you buy or sell a stock, you pay 0.1% of the share’s value as STT.
4. Do I have to pay STCG taxes on inherited properties?
While passing on inherited property within the family, you do not have to incur any short-term capital gain tax. However, if you are selling an inherited property within 24 months of holding it, the taxation of your STCG will be according to your income slab.
5. Does a 15-year-old have to file income tax returns?
In India, there is no minimum age limit to filing income tax returns. Thus, if 15-year olds earn an income above the taxable slab, their guardian must file ITR on their behalf. But as soon as the taxpayer turns 18, they will have to file ITR by themselves.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
|Section 112A||Section 50||Section 245|
|Section 80QQB||Section 32AD||Section 250|
|Section 35D||Section 143 (1a)||Section 115BAB|
|Section 143||Section 79||Section 140A|
|Section 17(2)||Section 3||Section 94A|
|Section 147||Section 80||Section 40A|
|Section 48||Section 115AD||Section 14A|
|Section 45||Section 285BA||Section 6|
|Section 36||Section 87A||Section 80GGA|
|Section 244A||Section 234E||Section 28|
|Section 197||Sectio 548||Section 194J(1)(ba)|
|Section 145A||Section 80P||Section 92CD|
Public Provident Fund (PPF) – Know PPF Details and Its BenefitsIn 1968, the National Savings Institute introduced the PPF scheme. The Public Provident Fund (PPF) ... Read More »
Previous Year in Income Tax: Exceptions on Taxation‘Previous Year’ in the Income Tax Act, 1961 is an important concept associated with the payment... Read More »
What is Anti-Dumping Duty (ADD) – Its Working, Examples and CalculationAnti-dumping duty refers to a tax or other charges levied on a particular imported product. The con... Read More »
Loan to Purchase Land – Types, Features, Eligibility and Documents RequiredLoans for land purchase or plot loans are secured loans given for purchasing plots of land. Borrowe... Read More »
List of 11 Tax-Free Income Sources in India (2023)There are many sources through which a person can earn his/her income. It can be income from salary... Read More »
New GST Rates in India (2023) – Latest Changes in GST RatesGST or the Goods and Services Tax is one of the most significant tax reforms to be ushered in since... Read More »
What is Input Tax Credit (ITC) in GST – Eligibility and Documents Required To Claim ITCGST is consumption-based taxation levied at all stages in a value chain. Set-off of GST paid in the... Read More »
What is Cess on Income Tax: Overview, Types and CalculationCess is a tax on taxes imposed by the Central Government or state governments for specific reasons.... Read More »
Best SIP Mutual Funds To Invest In India (2023) – Its Types And TaxationA Systematic Investment Plan (SIP) is a convenient way to invest a fixed sum in mutual funds. For i... Read More »
All information is subject to specific conditions | © 2023 Navi Technologies Ltd. All rights are reserved.