Short Term Capital Gain : What You Need to Know

 

In India, short term capital gain refers to the profit earned on the sale of an asset that has been held for a period of less than 36 months. The gain is added to the individual's taxable income and taxed at the applicable income tax rate. In this blog post, we will explore what short term capital gain is, how it is calculated, and the tax implications for taxpayers in India.

 

What is Short Term Capital Gain?

 

Short term capital gain is the profit earned on the sale of an asset that has been held for a period of less than 36 months. It can be earned on various types of assets, such as stocks, mutual funds, bonds, real estate, and gold. Short term capital gain is the difference between the sale price and the cost of acquisition of the asset.

 

For example, if an individual purchases shares of a company for INR 10,000 and sells them for INR 12,000 after 6 months, the short term capital gain will be INR 2,000.

 

How is Short Term Capital Gain Calculated?

 

The calculation of short term capital gain depends on the type of asset and the method of acquisition. The cost of acquisition is the actual cost of the asset, including brokerage fees, stamp duty, and other expenses incurred in acquiring the asset.

 

For assets acquired before April 1, 2001, the cost of acquisition is determined based on the fair market value of the asset as on April 1, 2001. This is known as the "fair market value" method.

 

For assets acquired after April 1, 2001, the cost of acquisition is the actual cost of the asset.

 

The short term capital gain is calculated by subtracting the cost of acquisition from the sale price of the asset.

 

Short Term Capital Gain in India: What You Need to Know

Tax Implications of Short Term Capital Gain

Short term capital gain is taxed as per the applicable income tax rate of the taxpayer. The income tax rate depends on the individual's income level and the income tax slabs.

 

For individuals, the current income tax slabs are as follows:

• Income up to INR 2.5 lakhs: No tax
• Income between INR 2.5 lakhs and INR 5 lakhs: 5% tax
• Income between INR 5 lakhs and INR 10 lakhs: 20% tax
• Income above INR 10 lakhs: 30% tax (as on 2021)
  

 

For example, if an individual earns a short term capital gain of INR 50,000 and falls in the 20% tax slab, the tax liability will be INR 10,000 (20% of INR 50,000).

 

It is important to note that short term capital gain is added to the individual's taxable income and taxed at the applicable income tax rate. Therefore, it is important to plan the sale of assets to minimize the tax liability.

 

Exemptions from Short Term Capital Gain Tax

 

There are certain exemptions available from short term capital gain tax, such as:

 

1. Equity Shares: If an individual sells equity shares of a company listed on a recognized stock exchange in India, and the Securities Transaction Tax (STT) has been paid on the sale, the short term capital gain will be exempt from tax.

 

2. Mutual Funds: If an individual sells units of an equity-oriented mutual fund and the STT has been paid on the sale, the short term capital gain will be exempt from tax.

 

3. Agricultural Land: Short term capital gain earned on the sale of agricultural land is exempt from tax.

 

4. Compensation from the Government: Short term capital gain earned on the sale of an asset that was acquired as compensation from the government is exempt from tax.

 

In conclusion, short term capital gain is the profit earned on the sale of an asset held for less than 36 months. It is taxed as per the applicable income tax rate of the taxpayer and is added to the individual's taxable income. It is important to plan the sale of assets to minimize the tax liability. There are certain exemptions available from short term capital gain tax, such as equity shares, mutual funds, agricultural land, and compensation from the government. Therefore, it is important to be aware of the tax implications and exemptions when investing in different types of assets. By understanding short term capital gain and its tax implications, individuals can make informed investment decisions and maximize their returns.