When it comes to selling assets, one of the key considerations is the capital gains tax. Capital gains tax is levied on the profit made from the sale of a capital asset, such as property, stocks or bonds. Capital gains are classified as Short Term or long-term depending on the holding period of the asset.
In this article, we will focus on short term capital gains tax (STCG), exploring what it is, how it is calculated and the key factors you need to consider.
Short Term capital gains tax applies to the profit made from the sale of an asset held for a short period, typically less than 24 months (in the case of real estate) or 12 months (in the case of securities, such as stocks and mutual funds).
The exact duration can vary depending on the asset type and jurisdiction, but generally, a sale of assets within a short time frame after acquisition will be subject to STCG tax on shares.
The Short Term capital gains (STCG) tax rate depends on the type of asset sold, with different assets being subject to different rates. Here is a breakdown of the applicable tax rates for various asset classes:
For transactions made on or before July 22, 2024, Short Term capital gains from the sale of listed equity shares and equity-oriented mutual funds will have a concessional tax rate of 15%.
However, starting from July 23, 2024, this rate will increase to 20%. This change means that gains from these investments will attract a higher tax rate, reflecting the government's policy adjustments.
Short Term capital gains on other assets such as real estate, land and unlisted shares are taxed at the individual’s regular income tax slab rate.
This means that the gains are a part of the taxpayer’s total annual income and the tax rate will be according to the applicable income tax bracket. This rate can vary depending on the taxpayer's total income, with higher earners potentially facing a more significant tax burden on these types of assets.
The Union Budget 2024 introduced a hike in the tax rate for Short Term Capital Gains (STCG) from equity investments, raising it from 15% to 20%. To accurately calculate your capital gains under these new rules, follow these streamlined steps:
Short Term capital gains tax is a crucial aspect of tax planning that can significantly impact your overall tax liability. Understanding how it works, how to calculate and the strategies available to minimise it can help you make informed decisions about your investments and asset sales.