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Short-term capital gain tax (STCG) is a tax levied on capital gains from the sale of an asset held for a short period.
What are capital gains?
The gains or profits from sale of capital assets are classified as capital gains. The most common examples of capital assets are land, building, house property, gold, trademarks, equity shares, patents, leasehold rights, machinery, etc. If a capital asset is sold within government-defined short-term holding period, gains from it are known as short-term capital gains.
How is STCG tax calculated?
After taking full value of an asset into account, deduct the expenditure incurred in connection with the transfer. Also, deduct the cost of acquisition and improvement costs. The remainder amount is the short-term capital gain, which is then taxed under STCG.
How is short-term holding period defined?
The short-term holding period differs for various items. For security assets like shares listed on stock exchange, debentures, mutual funds, and government securities, the holding period is up to 12 months. For other immovable assets, such as land, property, the period is up to 24 months.
Taxation and exemptions with rest to short-term capital gains
For securities, the tax rates are discussed under Section 111A of the Income-Tax Act. For instance, the short-term capital gains tax levied on listed equity shares is 15 per cent.
There are certain exemptions to taxation on securities which do not fall under Section 111A. Short-term capital gains on sale of equity shares through unrecognised stock exchange, gains due to sale of any shares apart from equity shares, among others, do not attract any tax.
In real estate, all property transactions attract short-term capital gains tax, provided property transfer happens within 24 months of ownership/purchase. Inherited property does not attract short-term capital gains tax. However, if one sells the inherited property, one has to pay tax on it. When short-term capital gains tax is levied on non-securities (such as property), it is added to the income-tax return, and the taxpayer is taxed according to their income-tax slab.
Individuals who wish to claim deductions or exemptions on short-term capital gains can do so under Sections 80C to 80U of the Income Tax Act, provided short-term capital gains do not fall under Section 111A. In cases where gains fall under the ambit of Section 111A, individuals cannot opt for deductions under Sections 80C to 80U.