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Understand short-term capital gain tax on shares and how tax rules apply when equity investments are sold within a short holding period.
Short Term Capital Gain (STCG) tax applies to profits earned from selling shares within a short holding period. Since equity markets often involve frequent trading, understanding how STCG tax is applied provides clarity on post-tax outcomes and related compliance requirements. This article explains STCG tax on shares in India, including the rate, calculation, examples, and key points to remember.
Short Term Capital Gain tax is the tax payable on profits earned from selling listed shares held for less than 12 months. If the holding period is under a year, any profit from the sale is classified as STCG and taxed at a flat, predefined rate.
Key characteristics:
Applies only when shares are sold for a profit.
The 12-month rule is important for classification.
STCG arises from listed equity shares where STT has been paid.
Losses can be adjusted against certain types of gains.
STCG tax ensures that short-term trading profits are taxed appropriately, given the higher frequency and speculative nature of such transactions.
In India, STCG on equity shares is governed under Section 111A of the Income Tax Act. This section applies when the following conditions are met:
Shares are equity shares listed on a recognised stock exchange.
Securities Transaction Tax (STT) is paid at the time of purchase and sale.
The holding period is less than 12 months.
The STCG tax rate under Section 111A is:
20% on the gain, plus applicable surcharge and cess.
Additional points to know:
STCG is taxable even if the taxpayer falls under the basic exemption limit, though adjustments may apply for residents.
Short-term capital losses (STCL) can be carried forward for up to 8 years, subject to filing conditions.
Gains must be reported under the “Capital Gains” section in the income tax return (ITR).
STCG calculation is straightforward once the cost and sale values are known.
The basic formula is:
Short Term Capital Gain = Sale Value – Cost of Acquisition – Brokerage/Charges
Steps to calculate STCG:
Identify sale value
Total amount received upon selling the shares.
Deduct the cost of acquisition
Purchase price × number of shares.
Subtract transaction expenses
Brokerage, STT (not deductible for shares), exchange fees, etc., where allowed.
Arrive at the net gain
If the value is positive then STCG
If negative then Short-term capital loss (STCL)
Shares purchased at ₹800 and sold at ₹1,000
Brokerage + charges: ₹20
Sale value (₹1,000) – Cost (₹800) – Charges (₹20) = ₹180 (STCG)
Tax payable: 20% of ₹180 = ₹36 (plus cess and surcharge)
Short-term and long-term capital gains follow different taxation rules.
| Particulars | STCG (Shares held < 12 months) | LTCG (Shares held ≥ 12 months) |
|---|---|---|
Tax section |
111A |
112A |
Tax rate |
20% + cess/surcharge |
12.5% above ₹1 lakh of LTCG |
Eligibility |
Listed shares with STT paid |
Listed shares with STT paid |
Loss adjustment |
Can set off against STCG/LTCG |
Can set off only against LTCG |
Nature |
More frequent trading, higher volatility |
Long-term investment focus |
This comparison helps investors understand how the holding period influences tax outcomes.
Investors should keep the following factors in mind when dealing with STCG:
STT is not deductible, even though it forms part of the transaction cost.
High-frequency trading may increase tax outflow, reducing net returns.
Incorrect classification (mixing up STCG and LTCG) may lead to tax notices.
Gains must be disclosed in ITR, regardless of the income slab.
Bookkeeping errors may occur if multiple buy/sell transactions happen over a short period.
FIFO method applies when calculating capital gains for multiple purchase lots.
Accurate reporting of capital gains requires proper tracking of transactions.
Short Term Capital Gain tax on shares is an important concept for investors who trade frequently or hold shares for less than 12 months. The tax rate is straightforward, but accurate calculation requires proper recordkeeping and an understanding of the rules.
Key Points to Remember:
STCG applies when listed shares are sold within 12 months.
The tax rate is 20% plus applicable cess and surcharge.
Gains must be calculated using sale value minus purchase cost and charges.
STCG differs from LTCG, especially in rate and set-off rules.
Careful classification and reporting ensure tax compliance.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
Short-term capital gains (STCG) on listed equity shares (where Securities Transaction Tax has been paid and sale is on a recognised stock exchange) are taxed under Section 111A at 15 % for transfers made before 23 July 2024, and 20 % for transfers on or after that date.
Short-term capital gain on shares is calculated by subtracting the cost of acquisition and any permitted transfer expenses from the sale consideration. If the result is positive, it constitutes STCG and is subject to tax.
For listed equity shares (with STT paid and sold on a recognised stock exchange) the holding period is less than 12 months to qualify as short-term capital gain under Section 111A.
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Posted on 19 Dec
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