Short Term Capital Gain - Tax Rate and Exemptions| Bajaj Markets

Short Term Capital Gain - Tax Rate and Exemptions

03 Feb 2022
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A capital asset can either be a property or security and as a citizen of India, it is our duty to pay taxes on such assets. Capital gain means the profit one gets for transferring a capital asset. Capital gains are further classified into short term capital gains and long term capital gains. The tax applicable to these gains is called capital gains tax. There are also several income tax exemptions given on short term capital gains tax. So, what is short term capital gain? Let’s explore.

What is Short Term Capital Gain?

A short term capital gain means any profit or capital gain that you get by selling short term capital assets. It also includes any gains on depreciable assets. Let’s understand this with an example.

Sakshi had purchased a building in February 2019 for ₹50 lakh and she sold it in February 2020 for ₹60 lakh. In this case, Sakshi’s short term capital gain becomes ₹10 lakh.

What are Short Term Capital Assets?

Any asset that you own for under 36 months from the date of initial transfer classifies as a short term capital asset. To understand this, let’s consider the above example. Sakshi had purchased the building in February 2019 and sold it in February 2020 after holding it for a year. As she only had it for 12 months, it will be considered as a short term capital asset. In the case of assets like shares listed in recognised stock exchange markets in India, this time period of 36 months reduces to 12 months.

Short Term Capital Gain on Securities

Units of equity inclined mutual funds and business trusts as well as equity gains that are listed in recognised stock markets in India also attract small-term capital gains as per Section 111A. The mentioned units that are transferred after October 1, 2004, come under securities transaction tax provided they are transferred through a recognised stock exchange.

Short Term Capital Gains Tax Exemptions

Short term capital gains tax also comes with certain exemptions. Mentioned below are some of the important short term capital gains tax exemptions.

 

  • Short term capital gains on the sale of equity shares through the stock exchange that is unrecognised

  • Short term capital gains arising from the sale of any shares except equity shares

  • Short term capital gains due to the sale of immovable property, silver, gold, etc.

  • Short term capital gains coming from the sale of government securities, bonds and debentures

  • Short term capital gains from the sale of non-equity oriented MFs

Short Term Capital Gain on Property

Every property transaction attracts a short term capital gains tax. However, this property transfer should happen in 3 years, i.e. 36 months of ownership or purchase. The selling of inherited property also attracts short term capital gains tax. You should note that this short term capital gains tax can have rebate concessions that cover any additional expenses caused due to fixing and redevelopment of the property.

Short Term Capital Gains Tax Rate

The short term capital gains tax rate or STCG tax rate is fixed by the government. It comes under Section 111A of the IT Act. Currently, the rate of income tax on short term capital gains stands at 15%. This short term capital gains tax rate is sans surcharge and cess. Usually, these rates are extra. Those short term capital gains that do not come under Section 111A fall under normal short term capital gains. Such gains are charged taxes as per your total taxable income.

Short Term Capital Gain Exemption

If you want to claim income tax deductions on your short term capital gains, you can do so under Section 80C and 80U. These deductions or exemptions can be claimed only if they do not fall under Section 111A. Let’s understand the short term capital gains tax rate with the help of an example.

Sheetal had bought a plot in Karnataka for ₹15 lakh in March 2020. She sold the same in March 2021 for ₹20 lakh. She has also invested ₹1.5 lakh in PPF and ₹50,000 more in NSC. Let’s have a look at Sheetal’s total taxable income and her short term gains tax.

As the property does not come under Section 111A of the IT Act, Sheetal can claim deductions available under Section 80C and 80U. A total deduction of ₹2 lakh can be claimed including PPF and NSC. Below is the calculation for the same.

Short term capital gains by selling the property: ₹20,00,000-₹15,00,000 = ₹5,00,000

This becomes her gross total income.

Deductions as per Section 80C and 80U: ₹2,00,000

Total taxable amount= ₹5,00,000-₹2,00,000= ₹3,00,000

STCG tax rate applicable here is 15% (based on her current income tax slab).

Therefore, Sheetal will have to pay ₹45,000 as her short term capital gains tax.

Conclusion

Before buying or selling any short term capital asset, you should know about the STCG tax rate applicable to it. The above-mentioned details with the help of examples will make it easier for you to understand short term capital gains tax. To know more about income tax in India, go to the official website of Bajaj Markets now.

FAQs

  • ✔️What is the short term capital gains tax rate

     The short term capital gains tax rate in India is 15%.

  • ✔️Does property sale come under Section 111A?

     No, the sale or purchase of a property does not fall under Section 111A of the Income Tax Act of India.

  • ✔️What is the eligibility of a short term capital asset?

     Any asset owned by you for under 36 months classifies as a short term capital gain.

  • ✔️Do I have to pay short term capital gains tax rate on the sale of a property?

     Yes, you will have to pay short term capital gains tax rate on the sale of a property if you sell it within 36 months.

  • ✔️Does inherited property’s selling attract short term capital gains tax?

     Yes, selling inherited property also attracts the short term capital gains tax.