Short-Term Capital Gain Tax: What Is It; How Does It Work?

The short-term capital gains tax applies to gains on the holding and sale of assets for less than 36 months. If a taxpayer holds a principal asset for three years or less before selling it, it is considered short-term capital. However, the holding period of some assets like equity-oriented mutual funds, debentures, and government securities listed on the Indian Stock Exchange is reduced to one year instead of three. For immovable assets like land or buildings, or unlisted shares, the holding period is 24 months instead of 36 months.

The tax on short-term gains is imposed by the government and is subject to Section 111A of the Income Tax Act. The current rate is 15 percent, minus copayments and fees, which generally overlap. Short-term gains not subject to section 111A are based on ordinary short-term gains and are taxable on the entire taxable income of a particular person.

Also Read: Building Tax: Here’s How To Calculate And Pay It

Temporary Profits Tax Exemption Under Section 111A

Securities are subject to certain exemptions that are not subject to section 111A, some of which are described below.

• Short-term gains are made by selling shares in stock through an unrecognized stock market. Short-term gains on any shares sold except for equity shares.

• Short-term gains from the sale of non-equity-related MFs.

• Short-term gains from the sale of bonds, government securities, and debentures. Short-term gains from the sale of real estate, silver, gold, etc.

Tax On Short-Term Capital Gains In Certain Cases

As per the income tax India government website, when an individual's total income involves capital gains from the sale of a short-term capital asset, such as equity shares or units of equity-oriented funds, and the transaction meets certain conditions, including being subject to securities transaction tax, the tax payable is calculated as follows:

• 15 per cent tax on short-term capital gains.

• Income tax on the remaining total income as if it were the entire income of the individual.

For individuals or Hindu undivided families, if their total income (after reducing short-term capital gains) falls below the maximum non-taxable amount, the short-term capital gains are adjusted accordingly, and the tax on the remaining gains is calculated at a 15 per cent rate.

Additionally:

• Deductions under Chapter VI-A are allowed from the gross total income reduced by such capital gains.

• Rebates under section 88 are permitted from the income tax on the total income reduced by such capital gains.