Introduction to Capital Gains and STCG

Capital gains originate from the sale of capital assets like properties, shares, bonds, and vehicles. These gains are divided into short-term and long-term categories based on the asset's holding period before transfer, which affects applicable tax rates and reporting requirements.

Budget 2024 Update

The 2024 budget introduces key changes to capital gains taxation, effective from the financial year 2024-25. New holding periods for capital assets are set at 12 months for listed securities, including equity shares and units of equity-oriented funds, and 24 months for other assets. From July 23, 2024, short-term capital gains tax on listed equity shares and funds increases to 20% from 15%.

Defining Short-Term Capital Gains (STCG)

Short-term capital gains occur when short-term capital assets are transferred, defined by the asset's holding period. Gains from this transfer are considered short-term if the holding period is less than or equal to the specified duration. Tax rates vary by asset type.

Calculation of Short-Term Capital Gains

• Determine Full Value of Consideration: The sale amount received from the asset.
• Subtract Expenses Incurred: Deduct any exclusive transfer expenses.
• Calculate Net Sale Consideration: Subtract expenses from the full sale value.
• Deduct Cost of Acquisition: The asset's original purchase price.
• Subtract Cost of Improvement: Deduct improvements that increased asset value.
• Compute STCG: Result after deductions is the short-term capital gain.
• Apply Exemptions: Subtract applicable exemptions like Sections 54B or 54D.
• Calculate Final STCG Chargeable to Tax: Remaining amount is taxable short-term capital gain.

Short-Term Capital Gains Tax Rates

Short-term capital gains tax rates depend on the asset type:

• Listed Equity Shares and Funds: Gains from listed equity shares and equity-oriented mutual funds under a 12-month holding period are taxed at 15%.
• Other Assets: Gains from real estate, land, and unlisted shares are taxed according to the individual's income tax slab rates.

STCG Tax on Shares

Short-term gains on shares occur when shares are held less than the specified period. Listed shares held under 12 months and unlisted shares under 24 months are taxable as short-term gains. Listed shares have a tax rate of 15%, while unlisted shares are taxed per regular slab rates.

STCG Tax on Property

Property sold within 24 months results in a short-term capital gain, taxed at the regular slab rates without indexation benefits available for long-term gains.

Exemptions on Short-Term Capital Gains

• Section 54B: Exemptions for gains from agricultural land sales, with reinvestment in another agricultural property.
• Section 54D: Exemptions for gains from industrial land/building sales, requiring reinvestment in industrial property.

Illustrative Example of Short-Term Capital Gains

Scenario: Ravi bought a house for ₹20,00,000 in 2022 and sold it for ₹65,00,000 in 2023.

• Full Value of Consideration: ₹65,00,000
• Less: Expenses Incurred: Nil
• Net Sale Consideration: ₹65,00,000
• Less: Cost of Acquisition: ₹20,00,000
• Less: Cost of Improvement: Nil
• Short-Term Capital Gains: ₹45,00,000
• Less: Exemptions under Section 54B/54D: Nil
• Short-Term Capital Gains Chargeable to Tax: ₹45,00,000

The full ₹45,00,000 is taxable as short-term capital gains due to no applicable exemptions.

Conclusion

Short-term capital gains are essential in tax planning. Understanding tax changes from Budget 2024 and exemptions help taxpayers navigate their obligations, ensuring compliance and optimizing tax outcomes.