Short-Term Capital Gains Tax Rate for the Fiscal Year 2024-25
Introduction of Short-Term Capital Gains Tax
Short-Term Capital Gains (STCG) refer to profits realized from the sale of assets held for less than 24 months. However, for listed equity shares and mutual funds, this holding period is shorter—just 12 months. When a Securities Transaction Tax (STT) is applicable, STCG is taxed at a rate ranging from 15% to 20% under Section 111A of the Income Tax Act. This tax framework streamlines the taxation process for investors involved in the stock market and mutual funds.
1. Short-Term Capital Gains Tax Rate for the Fiscal Year 2024-25
The short-term capital gains tax rates for the fiscal year 2024-25 differ based on the asset category. Below is a breakdown of the applicable rates:
Asset Type | STCG Tax Rate |
Listed Equity Shares – 20%
Equity-Oriented Mutual Fund Units – 20%
Unlisted Equity Shares (including foreign) Taxed according to the individual’s income tax slab
Immovable Assets (house, land, buildings) Taxed according to the individual’s income tax slab
Movable Assets (gold, silver, antiques, etc.) Taxed according to the individual’s income tax slab
2. Short-Term Capital Gains Tax on Equity and Non-Equity Assets
The short-term capital gains tax on equity assets is a flat rate of 20% if they are sold within 12 months, and this rate applies uniformly regardless of the investor’s income level. In contrast, for non-equity assets, such as debt mutual funds or gold, short-term gains are added to the total income and taxed according to the applicable income tax slab rate.
3. Short-Term Capital Gains Tax on Stocks
Short-term capital gains tax on shares is levied at 15% when the shares are sold within 12 months and the transaction is subject to Securities Transaction Tax (STT). This rate is applicable exclusively to listed equity shares in accordance with Section 111A of the Income Tax Act.
4.Short-Term Capital Gains Tax on Real Estate
Short-Term Capital Gains (STCG) tax on real estate is applicable when the property is sold within 24 months of its purchase. The gains are included in the seller’s overall income and taxed at the applicable income tax slab rate as per the Income Tax Act.
5. Short-Term Capital Gains Tax on Hybrid Funds
The treatment of short-term capital gains tax varies for hybrid funds, which consist of both equity and debt components. If the equity exposure exceeds 65%, gains from investments held for less than twelve months will be taxed at 20%. Conversely, if the equity exposure is below 65%, the short-term capital gains will be added to your total income and taxed according to your applicable income tax slab. Understanding the level of equity exposure in a fund is essential for determining your tax liability.
6. Short-Term Capital Gains Tax for Systematic Investment Plans (SIPs)
Today, Systematic Investment Plans (SIPs) involve regular investments in mutual funds, with units redeemed based on the FIFO (First In, First Out) method, meaning that the oldest units are sold first. In simpler terms, if you’ve held the units for over 12 months, you will incur long-term capital gains tax; however, if you sell units within one year, a Short-Term Capital Gains (STCG) tax of 20% will apply. Additionally, all equity mutual funds are subject to a Securities Transaction Tax (STT) of 0.001% on transactions.
7.Rules for Holding Periods Related to Short-Term Capital Gains (STCG)
Grasping the holding period rules for Short-Term Capital Gains (STCG) is vital for effective tax planning. The table below details the holding periods associated with various types of assets:
Asset Type | STCG Holding Period | Example |
Listed equity shares – 12 months or less | Shares of XYZ Ltd. listed on the NSE
Equity-oriented mutual fund units – 12 months or less Units of the XYZ Growth Fund
Unlisted equity shares (including foreign shares) -24 months or less Shares of a privately owned tech startup
Immovable assets (houses, land, buildings) 24 months or less A residential property located in Bangalore
Movable assets (gold, silver, paintings, etc.) 24 months or less A diamond necklace
8.How to Calculate Short-Term Capital Gains Tax?
To calculate short-term capital gains (STCG), start by subtracting the purchase cost and any related expenses from the sale price. You can use the following formulas:
Sale Proceeds = Total Sale Value – Expenses (such as brokerage fees and stamp duty)
Cost of Acquisition = Purchase Price + Associated Costs (including registration fees and stamp duty
STCG= Net Sale Proceeds – Total Acquisition Cost
9. Example of Calculating Short-Term Capital Gains Tax
Let’s assume you purchased 100 shares of ABC Ltd. on January 1, 2024, for Rs. 100 per share and sold these shares on June 1, 2024, for Rs. 125 per share. The total brokerage and transaction costs were Rs. 2,000. Since there are no exemptions under Section 54B or 54D, the short-term capital gains will be calculated as follows.
9.1.Sale Proceeds:
Total Sale Value: 100 shares × Rs. 125 per share = Rs. 12,500
Less: Brokerage and Additional Expenses: Rs. 2,000
Net Sale Proceeds: Rs. 10,500
9.2 Acquisition Cost:
- Purchase Price: 100 shares × Rs. 100 per share = Rs. 10,000
- Total Cost of Acquisition: Rs. 10,000 (assuming no extra costs)
9.3. Calculation of Short-Term Capital Gains (STCG):
STCG = Net Sale Proceeds – Cost of Acquisition
Rs. 10,500 – Rs. 10,000 = Rs. 500
As this represents a short-term capital gain, it will be taxed at a rate of 20% for equity-oriented assets.
Tax Payable: 20% of Rs. 500 = Rs. 100
10. Exemptions from Short-Term Capital Gains Tax
According to the Income Tax Act and the recent updates from the 2024 Union Budget, you may qualify for additional relief from short-term capital gains (STCG) tax under Sections 54B and 54D, provided you meet specific conditions.
Section 54B:If you sell agricultural land that has been used for farming purposes and reinvest the proceeds in another agricultural property, you can gain an exemption from STCG tax.
Section 54D:Selling industrial land or buildings and reinvesting the income into another industrial property may also qualify for a tax exemption.
These exemptions can help reduce the tax liability for taxpayers in certain situations.
11. Strategies to Minimize Short-Term Capital Gains Tax
While minimizing taxes is advantageous, it shouldn’t be the sole consideration in mutual fund investments. It’s crucial to have a well-structured investment strategy that aligns with your financial objectives and risk tolerance. Nonetheless, tax-efficient approaches can enhance your overall returns.
- Lower Tax Rate: Holding mutual fund units for more than a year can reduce your tax liability, as long-term capital gains on equity funds are taxed at a lower rate than short-term capital gains.
2. Tax Benefits:Long-term investments in equity funds may qualify for exemptions or reduced tax rates, depending on your individual circumstances.
3. Equity-Linked Savings Scheme (ELSS):Investing in ELSS funds allows you to claim deductions under Section 80C of the Income Tax Act, which can help lower your taxable income.
4.Portfolio Diversification: ELSS funds can enhance portfolio diversification and potentially provide better risk-adjusted returns compared to traditional tax-saving options.
12. Conclusion:
Short-term capital gains tax is a crucial consideration for every investor, as it impacts income derived from shares, mutual funds, properties, and other assets. In light of the recent updates regarding Budget 2025, understanding taxation rates, holding periods, and available exemptions is essential for effective financial planning. Strategic investment planning can help minimize taxable income through the utilization of certain exemptions under Sections 54B and 54D, which may involve longer holding periods or tax-saving instruments like ELSS. A solid grasp of tax regulations enables investors to make informed decisions and maximize their benefits. For professional guidance on tax planning and compliance, consult experts who can navigate you through the complexities of the process.
