Short-term Capital Gain Tax on Shares
If you sell listed shares within 12 months of buying them, the profit is a short-term capital gain (STCG) and is taxed at 20%. If you sell after 12 months, it becomes a long-term capital gain (LTCG), which is taxed at a lower rate. Knowing which one applies helps you plan your trades and your tax.
If you are planning to start investing in shares, you can open a demat account online to hold your investments electronically and manage your share transactions.
This guide covers short-term capital gains tax on shares: the rate, how to work it out, how losses help and how to report it in your return.
What is Short-Term Capital Gain Tax on Shares?
Short-term capital gains tax is the tax you pay on profit from selling shares you held for 12 months or less. For listed shares on which securities transaction tax (STT) has been paid, the rate is 20% under Section 196 (earlier Section 111A).
If you held the shares for more than 12 months, the profit is a long-term gain and is taxed differently.
How are Short-term Capital Gains Taxed?
The rate depends on the type of gain.
- Gains covered by Section 196 (earlier 111A) are taxed at a flat 20%. This covers listed shares and equity mutual funds where STT is paid.
- All other short-term gains are added to your income and taxed at your income-tax slab rate.
Note: Before 23 July 2024, the rate under this section was 15%. The 12-month holding period for listed shares was the same then as it is now.
When Are Gains on Shares Treated as Short-Term?
Capital gains are classified as short-term or long-term based on the period an asset is held before sale. Generally, assets held for 24 months or less are classified as short-term capital assets. However, listed equity and preference shares are classified as short-term capital assets if held for 12 months or less.
Note: Share listing is not a compulsory requirement for shares transferred on or before July 10, 2014.
What Is the Short-Term Capital Gains Tax Rate on Shares
The table below shows the applicable short-term capital gains tax rates:
| Type of Short-Term Capital Gain | Applicable STCG Tax Rate |
|---|---|
| STCG covered under Section 111A |
|
| Equity-oriented mutual funds | |
| STCG not covered under Section 111A | Applicable income-tax slab rate |
How is Short-Term Capital Gain on Shares Calculated?
Subtract what you paid and your eligible selling costs from what you sold the shares for. The result is your short-term capital gain.
Formula:
Sale Value – Cost of Acquisition – Eligible Transfer Expenses = Short-Term Capital Gain
Brokerage you paid when buying adds to your purchase cost. Brokerage on selling counts as a selling cost. STT cannot be deducted.
Short-Term Capital Gain Tax Calculation Example
Suppose you buy listed shares for ₹1,00,000 and sell them after six months for ₹1,30,000.
- Short-term capital gain = ₹1,30,000 – ₹1,00,000 = ₹30,000
- Tax at 20% = ₹30,000 × 20% = ₹6,000
- Health and education cess at 4% = ₹6,000 × 4% = ₹240
- Total tax = ₹6,240
Now say you held the same shares for more than 12 months. The ₹30,000 would be a long-term gain. The first ₹1,25,000 of long-term gains in a year is exempt, so you would pay no tax on it, as long as you have no other long-term gains that year.
Note: This example assumes that the transaction meets the conditions for the Section 111A rate and does not account for other applicable adjustments.
What Happens When Shares are Sold at a Loss?
A loss on shares sold within 12 months is a short-term capital loss (STCL). You can set it off against both short-term and long-term capital gains, which lowers your tax. Booking a loss on purpose to offset gains is called tax-loss harvesting.
If you can’t use the whole loss in the same year, you can carry the rest forward for up to 8 years. To do this, report the loss in your return and file the return on time.
How Is STCG Tax Different for Other Investments?
It depends on what you sell and how long you held it. Only listed shares and equity mutual funds get the 20% rate. Most other short-term gains are taxed at your slab rate. As per the Income Tax Act, here is the STCG tax on the different types of investments:
1. Listed Equity Shares
- Holding Period: 12 months or less
- Applicable Tax: 20% under Section 111A (if the applicable conditions are met)
2. Unlisted Equity Shares
- Holding Period: 24 months or less
- Applicable Tax: As per income-tax slab rate
3. Preference Shares
- Holding Period: 12 months or less for listed and 24 months or less for unlisted shares
- Applicable Tax: As per income-tax slab rate
4. Equity-Oriented Mutual Funds
- Holding Period: 12 months or less
- Applicable Tax: 20% under Section 111A (if the applicable conditions are met)
5. Debt-Oriented Mutual Funds
- Holding Period: 24 months or less
- Applicable Tax: As per income-tax slab rate
6. Gold, Including Physical Gold
- Holding Period: 24 months or less
- Applicable Tax: As per income-tax slab rate
7. Residential Property and Land
- Holding Period: 24 months or less
- Applicable Tax: As per income-tax slab rate
8. Bonds and Debentures
- Holding Period: Depends on the security and applicable holding-period rules
- Applicable Tax: As per income-tax slab rate
Short-Term vs Long-Term Capital Gains on Shares
For listed shares, short-term gains are taxed at 20%. Long-term gains are taxed at 12.5%, and only the part above ₹1,25,000 a year is taxed. The table below shows the brief comparison.
| Feature | Short-Term (STCG) | Long-Term (LTCG) |
|---|---|---|
| Holding period (listed shares) | 12 months or less | More than 12 months |
| Section (listed shares) | 111A | 112A |
| Tax rate (listed shares) | 20% (15% before July 23, 2024) | 12.5% (10% before July 23, 2024) |
| Exemption (listed shares) | None | Gains up to ₹1,25,000 |
| Holding period (unlisted shares) | 24 months or less | More than 24 months |
| Section (unlisted shares) | No special section (normal STCG) | 112 |
| Tax rate (unlisted shares) | Normal slab rates | 12.5% without indexation (20% with indexation before July 23, 2024) |
How Do You Report and Pay Tax on Short-Term Capital Gains?
You report the gains in your income tax return and pay any tax due. Follow these steps.
- Calculate Your Gains: Subtract your purchase cost and eligible selling costs from the sale amount.
- Choose the Right ITR form: Individuals and HUFs usually file ITR-2. If you also have business or professional income, you may need ITR-3.
- Report the Gains: Enter the details in the capital gains schedule (Schedule CG), including gains taxed under Section 196 (earlier 111A).
- Pay any Tax Due: Check your tax liability and pay the balance after accounting for taxes already paid.
Risk Note: Tax rules can change, and your tax depends on your own situation. This article is for information only and is not tax or investment advice. Please check the latest rules and consult a qualified tax professional before filing your return. Investments in the securities market are subject to market risks, including loss of capital.
Frequently Asked Questions
Subtract your purchase cost and eligible selling costs from the sale amount. Then apply the tax rate. For listed shares with STT paid, sold on or after 23 July 2024, the rate is 20%, plus cess and surcharge if they apply.
The applicable short-term capital gains tax rate on shares is 20% under Section 111A. This rate applies to transactions made on or after 23 July 2024. Any gains from shares that do not come under Section 111A are taxed as per income-tax slab rates.
You cannot avoid tax on taxable gains simply by selling shares differently. However, you can set off eligible capital losses against capital gains to reduce your taxable gains. Check the applicable rules before claiming any adjustment.
STCG tax rules apply to all investors, but the applicable rate and treatment depend on the transaction, the type of shares and the relevant tax provisions. Section 111A applies only when its conditions are met.
Yes. You can set off short-term capital losses against both short-term and long-term gains. Any loss left over can be carried forward for up to 8 years if you report it in your return on time.
Not for gains taxed at 20%. That rate is flat, regardless of your slab. Short-term gains outside it are taxed at your slab rate. Surcharge and cess may apply on top.