What is Short-Term Capital Gains (STCG) Tax in India?

Navigating the tax implications of investment gains can often feel overwhelming, especially when terms like short-term capital gains (STCG) are introduced. Simply put, capital gains are the profit an investor earns when they sell off their capital asset within a specific short holding period.

Table of Content

• Holding Periods that Define STCG in India
• Current Short-Term Capital Gains Tax Rates (2025)
• How is STCG Calculated?
• Reporting STCG in Tax Returns
• Smart Tax Planning Tips

 This holding period varies depending on the type of asset an investor is holding, such as a property, equity shares or other investments, which is clearly defined under the Income Tax Act, 1961.

When an asset, like units of a mutual fund or equity shares, is sold before completing the prescribed holding period (less than 12 months in case of mutual funds or equity shares), the resulting profit an investor makes becomes taxable under short-term capital gains tax provisions. For example, if an investor purchases a unit of a mutual fund and sells it within a year at a profit, those earnings are classified as short-term capital gains. These gains are taxed at an applicable short-term capital gains tax rate, which varies based on the nature of the asset and whether certain conditions, such as the payment of Securities Transaction Tax (STT), are met.

Holding Periods that Define STCG in India

The holding period of the capital asset differs by its type. If an investor sells the capital asset before this holding period, gains are treated as short-term. Let us understand this through a table below:

Current Short-Term Capital Gains Tax Rates (2025)

Tax on STCG depends on the type of capital asset an investor is selling. Here is how the taxes apply under the latest rules that come from the Union Budget 2024 and the Finance Act 2024, which took effect from 23rd July 2024. For listed equities and similar instruments, the tax is applied without indexation benefits, which was previously at a lower rate (15%). The change reflects the government’s intent to encourage investors to make long-term investments.

Suggested Read: TYPES OF MUTUAL FUNDS AVAILABLE IN INDIA

How is STCG Calculated?

Calculating short-term capital gains tax is straightforward if you perform the simple calculation mentioned below:

STCG = Full Value of Consideration - Cost of Acquisition - Cost of Improvements (if applicable) - Transfer-related Expenses

Here:

• Full Value of Consideration is the total sale price received on selling the capital asset.
• Cost of Acquisition is the original purchase price of the capital asset.
• Cost of Improvement is any capital expenditure incurred to improve or enhance the asset after its acquisition. This is especially relevant for assets like property, where structural improvements or renovations are often undertaken.
• Transfer-related Expenses are the expenses linked to the sale, such as brokerage charges, legal fees, stamp duty or registration fees.

Example:
If an investor bought an equity worth INR 1 lakh and sold it at a profit of INR 1.5 lakh within 10 months of acquisition, the short-term capital gain is:

INR 1,50,000 - INR 1,00,000 = INR 50,000

Tax on this INR 50,000 gain would be charged at 20% plus applicable cess/subcharge.

Reporting STCG in Tax Returns

When it comes to filing income tax returns, an investor must be mindful of certain key considerations. Proper reporting ensures that investors stay compliant and avoid notices or penalties from the tax authorities.

• Disclose STCG under the appropriate schedule.
• Mention the asset type and holding period.
• Use the correct short-term capital gains tax rate.
• Attach supporting documents as required.

Suggested Read: What are LTCG & STCG? Understanding Capital Gains on Mutual Funds

Smart Tax Planning Tips

Plan your holding period

One of the simplest ways to manage short-term capital gains is to review the holding period of the investments before selling. Doing this could move gains from short-term to long-term, with potential tax benefits.

Use capital losses effectively

Short-term capital losses can be set off against short-term and long-term capital gains. Using these capital losses strategically positions you to reduce your overall short-term capital gains tax liability in a given financial year.

Time asset sales carefully

For capital assets where short-term gains are taxed according to the investor’s income tax slab, selling them within a year when the income is lower may help reduce the tax payable on such gains.

Seek expert advice

Tax regulations and rates are subject to change over time, making professional advice valuable for investors to make informed decisions. Consulting a financial adviser helps in managing short-term capital gains efficiently while ensuring compliance with tax laws.

Ultimately, understanding the nuances of short-term capital gains tax helps investors evaluate returns more realistically and plan exits with greater confidence. While some individuals combine market-linked strategies like a SIP with other financial goals, many also need reliable credit options in times of need. With India’s largest gold loan portfolio and a strong legacy of trust, Muthoot Finance offers accessible credit solutions to support your financial goals whenever and wherever you need them.