Short Term Capital Gains

What are Short Term Capital Gains?

Capital gains refer to the profits made on the sale of investment in any asset. These assets can be mutual funds, stocks, real estate, debt bonds, etc. In essence, it is a “gain” on “capital investment”. Short Term Capital Gains (STCG) are profits made on investment for a short period of time. The definition of what  is considered “short-term” varies for different financial products. Defining the holding period for capital gains is necessary for taxation purposes. The taxation on STCG is also different for different asset classes.

We will discuss popular investment instruments, and their corresponding holding period, for the  gains to be considered as Short Term Capital Gains.

Short Term Capital Gains from Equity Investment

• Investing in shares of listed companies, or in equity mutual funds is viewed as Equity Investment.
• The holding period for gains from equity investment to be considered as STCG is less than 1 year. 
• For instance, if you’ve invested Rs. 10,000 in an equity fund or a share, and redeem it  before 1 year of investment at Rs, 11,000. Then the value of STCG would be Rs. 1,000.
• As per the current Income Tax  regime, STCG from equity investment are taxed at the rate of 15%.
• A special class of equity funds – Equity Linked Savings Scheme or tax-saver funds which have income tax deduction benefits upto Rs, 1.5 lakh  under Section 80C – are beyond the scope of short – term capital gains. This is because they have a lock-in period of 3 years from the date of allotment, i.e.,  they have to be compulsorily held beyond the 1 year period specified under STCG taxation rules.

Short Term Capital Gains from Debt Investment

• Debt investment refers to investment in debt instruments such as bonds, debt mutual funds, certificates of deposit, commercial papers, corporate bonds, etc.
• The holding period for gains from debt investment to be considered as STCG is less than 3 years. 
• For instance, if you’ve invested Rs. 20,000 in a debt fund, and redeem the fund units post 2 years of investment at Rs. 24,000, your STCG would be Rs. 4,000.
• STCG from debt investment is added to the taxable incomes of the investor and taxed as per the tax slab of the investor.

Also Read: Taxation on Debt Funds

Short Term Capital Gains from Real Estate Investment

• Real estate investment pertains to properties such as land, residential house, flat, etc.
• The holding period for the gains from real estate investment to be considered as STCG is less than 2 years.
• For instance, if you’ve bought a property  for Rs. 50 lakh and sell it after 1 year of purchase at Rs. 52 lakh your STCG would be Rs. 2 lakh.
• STCG from real estate investment are taxed at the applicable income tax slab of the investor. Unlike LTCG taxation, no tax exemptions are available even if the proceeds are reinvested or used for buying bonds issued by RECL or NHAI.

Short Term Capital Gains from Gold Investment

• • Investment on gold can be of many forms, including physical gold, digital gold, gold funds or gold exchange traded funds.
  • The holding period for gains from gold investment to be considered as STCG is less than 3 years.
  • For example, if you’ve bought a gold biscuit for Rs. 40,000 and sell it within 3  years of purchase at Rs. 45,000, then the value of STCG would be Rs. 5,000.
  • STCG from gold investment is added to the taxable incomes of the investor and taxed as per the income tax slab of the investor.
  • It should be noted that investors would be charged 3% of Goods and Service Tax (GST) at the time of purchase of physical gold.