Profits made from selling a short-term capital asset are treated as "income" by an individual and are therefore subject to taxation under the India Income Tax Act, 1961.
Short-Term Capital Gains (STCG) apply to assets held for less than 36 months and are considered short-term. These are usually taxable at the individual's applicable income tax slab rate. Whereas, Long-Term Capital Gains (LTCG) are for assets held for 36 months or more and are considered long-term. They are generally subject to a flat tax rate, often with indexation benefits for certain assets.
According to the Income Tax Department rule, however, for specific assets such as shares (equity or preference) that are listed in a recognized stock exchange in India, units of equity-oriented mutual funds, listed securities like debentures and Government securities, units of UTI, and zero coupon bonds, the period of holding to be considered is 12 months instead of 36 months.
In the recent budget, the government eliminated the benefit of indexation and LTCG for non-equity mutual funds. This new rule came into existence from April 1, 2023, onwards. Under the latest amendment, gains from debt funds purchased after April 1, 2023, and sold after three years, the gains accrued will be treated as short-term capital gains and will be added to the taxable income. Previously, these gains were treated as long-term capital gains and after indexation, a 20 per cent tax was levied.
Examples of STCG Covered under Section 111A:
STCG from the sale of equity shares listed on a recognized stock exchange that is chargeable to STT (Securities Transaction Tax).
STCG from the sale of units of equity-oriented mutual funds is sold through a recognized stock exchange.
STCG from the sale of a business trust's units.
Moreover, even if a transaction is not subject to STT, STCG may still arise from the sale of equity shares, units of an equity-oriented mutual fund, or units of a business trust through a recognized stock exchange located in any International Financial Services Centre and consideration is paid or payable in foreign currency.
Examples Of STCG Not Covered Under Section 111A:
The examples of STCG not covered by Section 111A are as follows:
STCG from the sale of equity shares outside of a recognized stock exchange.
STCG from the sale of units in a debt-oriented mutual fund i.e., non-equity-oriented mutual fund.
STCG on the sale of debentures, bonds, and government securities.
STCG from the sale of assets other than shares or units, such as STCG on sale of immovable items like real estate; along with gold, silver, and other precious metals.