What is Short Term Capital Gains Tax (STCG)?
A Short-Term Capital Gain refers to any profit or gain arising from the transfer of a capital asset, that has been held by an assessee (tax-payer) for 36 months or less. In the case of listed Securities, Units, and Zero Coupon Bonds the time can be 12 months or less, and in the case of unlisted shares and immovable property held for 24 months or less. In simple words, Short-Term Capital gain is a profit earned by a sale of Short-term capital assets.
Table of Content
What are Capital Assets?
Capital Assets can be:
1. Any asset being movable or immovable, tangible or intangible held personally or professionally by an assessee;
2. Any securities held by Foreign Institutional Investors who have invested in such securities in accordance with the regulations made under the SEBI Act, 1992.,
but does not include:
- Stock-in-trade and raw materials held by businesses and professionals.
- Personal movable assets like jewelry (gold, silver, platinum, precious stones, or any other precious metal), paintings, sculptures, and archaeological collections.
- Rural agricultural land in India. (Condition applied)
- 6.5% Gold Bonds, 1977, 7% Gold Bonds 1980, National Defense Gold Bond, 1980.
- Special Bearer Bonds 1991.
- Gold Deposit Bond issued under Gold Deposit Scheme 1999.
- Deposit certificates issued under the Gold Monetisation Scheme, 2015.
Note: Capital Gains for the purpose of taxation are deemed to be the income of the previous year in which the transfer took place.
How Short-term Capital Gains are Taxed?
The tax rate levied on Short-term Capital gain has been divided into two categories:
A. Short-term Capital Gain covered under Section 111A
A tax of 15% (+ surcharge and cess) is charged on the following gains:
- Gain earned on the sale of listed equity shares.
- Gain earned on the sale of listed equity-oriented Mutual Funds.
- Gain earned on the sale of equity-oriented Mutual Funds, equity shares, or units of a recognized business trust.
NOTE:
1. To avail the benefit of the special tax rate under Section 111A, it is essential for an assessee to pay the Securities Transaction Tax (STT) at the time of selling the equity shares or mutual fund units.
2. No deduction under section 80C-80U is available for the short-term capital gains referred to in Section 111A.
B. Short-term Capital Gain not covered under Section 111A:
Any short-term gain that falls under this category is simply chargeable at a normal rate (falls under slab taxation).
- Gain earned on the sale of unlisted equity shares
- Gain earned on the sale of shares other than equity shares.
- Gain earned on the sale of debt-oriented Mutual Funds.
- Gain earned on the sale of debt securities, bonds, and government securities.
- Gain on any other short-term capital asset other than shares.
Calculation of Short-Term Capital Gain Tax
Before computing tax on Short-Term Capital Gain, it is mandatory to determine the value of Short-Term Capital Gain.
Calculation of the value of short-term, gain in case of capital assets other than shares:
|
Particulars |
Amount(₹) |
|---|---|
| Sales Consideration |
XXXX |
| Less: Cost of acquisition (purchase value) |
(XXXX) |
| Less: Cost of improvement |
(XXXX) |
| Less: Expenses incurred on transfer of asset |
(XXXX) |
|
Short-Term Capital Gain (STCG) |
XXXX |
Calculation of Short-term gain on shares:
|
Particulars |
Amount(₹) |
|---|---|
| Sales Consideration |
XXXX |
| Less: Cost of acquisition (purchase value) |
(XXXX) |
| Less: Expenses incurred on transfer of asset |
(XXXX) |
|
Short-Term Capital Gain (STCG) |
XXXX |
A. Calculation of Short-Term Capital Gain Tax Liability under Section 111A
Illustration:
Amit purchased equity shares worth ₹ 20,00,000 on 1st November 2022 at NSE. After 3 months he sold the same equity shares for ₹ 26,00,000 at NSE and paid the STT. The transfer cost incurred is ₹ 1,00,000. Besides, this he also invested ₹ 3,00,000 in PPF. Calculate the STCG and tax liability of Amit.
Solution:
Calculation of Short-term gain:
|
Particulars |
Amount(₹) |
|---|---|
| Sale Consideration |
26,00,000 |
| Less: Cost of acquisition (purchase value) |
(20,00,000) |
| Less: Expenses incurred on transfer of asset |
(1,00,000) |
| Short-Term Capital Gain (STCG) |
5,00,000 |
Calculation of STCG tax liability:
|
Particulars |
Amount(₹) |
|---|---|
| Short-Term Capital Gain |
5,00,000 |
| Less: Deduction under section 80C-80U |
NA |
|
Total Taxable Income |
5,00,000 |
| Tax on Total Income (15% on STCG under section 111A) |
75,000 |
| Add: Health and Education Cess (4% on tax) |
3,000 |
|
Total Tax Liability |
78,000 |
Note: No deduction under section 80C-80U is applicable for the short-term capital gains referred to in Section 111A.
B. Calculation of Short-Term Capital Gain Tax Liability not covered under Section 111A:
Illustration:
Kavita purchased a property in Patna worth ₹ 50,00,000 and sold the same property after 1.5 years for ₹ 80,00,000. She paid the maintenance charges of ₹ 5,00,000 and brokerage of ₹ 10,00,000 for the same. Moreover, she claimed a total deduction of ₹ 2,00,000 under section 80C-80U. Calculate the STCG and tax liability.
Solution:
Calculation of Short-term gain:
|
Particulars |
Amount(₹) |
|---|---|
| Sale Consideration |
80,00,000 |
| Less: Cost of acquisition (purchase value) |
(50,00,000) |
| Less: Cost of improvement |
(5,00,000) |
| Less: Expenses incurred on transfer of asset |
(10,00,000) |
| Short-Term Capital Gain (STCG) |
15,00,000 |
Calculation of STCG tax liability:
|
Particulars |
Amount(₹) |
|---|---|
| Short-Term Capital Gain |
15,00,000 |
| Less: Deduction under section 80C-80U |
(2,00,000) |
|
Total Taxable Income |
13,00,000 |
| Tax on Total Income (Slab Rate W.N.2) |
2,02,500 |
| Add: Health and Education Cess (4% on tax) |
8,100 |
|
Total Tax Liability |
2,10,600 |
Notes:
1. Property other than shares are not covered under section 111A, so tax on the gain is charged under the normal slab rate.
2. Calculating tax on the slab under the old tax regime:
| Up to 2,50,000 |
NIL |
| 2,50,000 @ 5% |
12,500 |
| 5,00,000 @ 20% |
1,00,000 |
| 3,00,000 @ 30% |
90,000 |
|
Total Tax |
2,02,500 |
Exemptions on Short-Term Capital Gains Tax
1. Any Short-Term Capital Gain arising on transfer of units of Unit Scheme 1964 if Unit Trust of India is exempt under Section 10(33).
2. Exemption on Short-Term Capital Gain arising on transfer of Agriculture Land (Section 54B)
- Applicable for: Individual and Hindu Undivided Families (HUF).
- Capital Asset Covered: Agriculture land held and used for agricultural purposes by the assessee or his parents for at least 24 months or more before the date of transfer.
- Exemption Applicability: Exemption can be claimed if an assessee uses the amount of capital gain to purchase the new agricultural land within a period of 2 years from the date of transfer.
- Exemption Amount: Cost of new land or Amount of Capital Gain, whichever is lower.
- Lock-in period: 3 years. Any transfer of new land within 3 years shall result in the withdrawal of the exemption.
- Capital Gain Account Scheme (CGAS): If an assessee fails to use full or part of the amount for the purchase of new agricultural land before the due date, such amount shall be deposited in the Capital Gains Deposit Account Scheme (CGAS) before the due date.
3. Exemption on Short-Term Capital Gain on compulsory acquisition of property used for industrial purposes (Section 54D)
- Applicable for: All Assessee
- Capital Asset Covered: Transfer of Land or Building used for industrial purposes by way of compulsory acquisition, which is used by the assessee for industrial purposes for at least 24 months.
- Exemption Applicability: Exemption can be claimed if an assessee uses the amount of capital gain to purchase any land or building or construct any building within 3 years from the date of receipt of compensation for shifting or reestablishing the industrial undertaking.
- Exemption Amount: Cost of new land or building or Amount of Capital Gain, whichever is lower.
- Lock-in period: 3 years.
- Capital Gain Account Scheme (CGAS): If an assessee fails to use full or part of the amount for the purchase of new industrial land or building before the due date, such amount shall be deposited in the Capital Gains Deposit Account Scheme (CGAS) before the due date.
4. Exemption on Short-Term Capital Gain arising on transfer of industrial undertaking from an urban area to a rural area (Section 54G)
- Applicable for: All Assessee
- Capital Asset Covered: Transfer of machinery, plant, building, or land or any right in any building and land used for an industrial undertaking purpose situated in an urban area to a rural area.
- Exemption Applicability: Exemption can be claimed if within a period of 1 year before or 3 years after the date of transfer, the assessee acquires new machinery, plant, building, or land or construct a new building for business purpose in the same area to which the undertaking is shifting or incurs any expense on shifting or transferring the establishment of undertakings to such area.
- Exemption Amount: Cost of new assets, including any expenses or Amount of Capital Gain, whichever is lower.
- Lock-in period: 3 years
- Capital Gain Account Scheme (CGAS): If an assessee fails to use full or part of the amount for investment in new assets before the due date, such amount shall be deposited in the Capital Gains Deposit Account Scheme (CGAS) before the due date.
5. Exemption on Short-Term Capital Gain arising on transfer of industrial undertaking from an urban area to Special Economic Zone (SEZ) (Section 54GA)
- Applicable for: All Assessee
- Capital Asset Covered: Transfer of machinery, plant, building, or land or any right in any building and land used for an industrial undertaking purpose situated in an urban area to Special Economic Zone (SEZ).
- Exemption Applicability: Exemption can be claimed if within a period of 1 year before or 3 years after the date of transfer, the assessee acquires new machinery, plant, building, or land or construct a new building for business purpose in the SEZ to which the undertaking is shifting or incurs any expense on shifting or transferring the establishment of undertakings to SEZ.
- Exemption Amount: Cost of new assets including any expenses or Amount of Capital Gain, whichever is lower.
- Lock-in period: 3 years
- Capital Gain Account Scheme (CGAS): If an assessee fails to use full or part of the amount for investment in new assets before the due date, such amount shall be deposited in the Capital Gains Deposit Account Scheme (CGAS) before the due date.