How Much Short-Term Capital Gain is Tax-Free
Nimisha Panda- Apr 22
- 9 min read
Updated: Apr 29
Under the Income Tax Act, any profit or gain from the sale of shares is capital earnings. Capital gains get categorized as short-term or long-term, depending on how long they are held. Listed stock shares and equity-oriented mutual fund units held for less than or equal to a year are short-term capital gains. Following the Budget 2024, short-term capital gains on the sale of equities-oriented funds and listed equity shares are now subject to 20% tax instead of the prior 15% rate. In this article, we will explain the concept of tax exemption on short-term capital gains, answering the question regarding how much of it is free.
Table of Contents
Changes to Capital Gains Tax and Holding Periods under Budget 2024
The Union Budget 2024 introduced some key changes in the country’s capital gains tax system. Short and long-term capital gains have been affected by these adjustments. The primary updates on them are listed below:
Higher STCG Tax Rate on Equity: Shares and equity-oriented mutual funds are now subject to a 20% STCG tax rate, up from 15%. This specific modification applies to transfers that are made after July 22, 2024.
Increased LTCG Exemption Limit: The exemption limit for long-term capital gains has risen from Rs. 1 lakh to Rs. 1.25 lakh.
Uniform LTCG Tax Rate: All assets, including equity shares, mutual funds, and real estate, are now subject to a uniform long-term capital gains tax rate of 12.5%.
These modifications impact the taxation of capital gains. You must be aware of these changes to maximize your tax strategy.
Current Tax Rule for STCG
The following asset class determines the STCG tax rate:
Shares and Equity-Oriented Mutual Funds: After July 22, 2024, 20% for transfers of shares and equity-oriented mutual funds.
Real Estate: Real estate is taxed based on your income tax slab and added to your income.
Other Assets: The asset and income tax slab determine the tax rate.
Short Term Capital Gain Tax on Shares and Stocks
The STCG tax is a flat 20% for shares held for less than a year. It applies to both listed and unlisted shares. For instance, if you purchased 100 shares of a business for Rs. 100 each and sold them for Rs. 150 each six months later, your Rs. 5,000 profit would be subject to 20% tax, meaning you would owe Rs. 1,000 in taxes.
Short Term Capital Gain Tax on Mutual Funds
Mutual fund short-term capital gains tax varies by fund type:
Equity-Oriented Funds: If held for less than a year, equity-oriented funds are subject to a 20% tax.
Debt Funds: If held for less than 36 months, they are taxed under your income tax slab.
Short Term Capital Gain Tax on Property
Your income gets increased by STCG on real estate, which is then taxed under the income tax bracket. It applies to properties that have been owned for less than a year. For example, if you sell a home within two years of buying it and make Rs. 10 lakh in profit, the money gets added to your overall income and is subject to short-term capital gains tax on the property at the rate of your applicable tax bracket.
Calculation of Short-Term Capital Gains Tax
The following procedures are involved in calculating short-term capital gains tax:
Establish the Holding Period: This is the basis for the STCG computation. The tax rate is affected by the holding period, which establishes whether your gains are regarded as short-term or long-term.
Why it's essential: Short-term gains are subject to higher taxes than long-term gains. Understanding your tax liability begins with knowing your holding period.
Short-term: A holding duration of less than a year is considered short-term for many assets, including stocks and equity mutual funds. It's less than 24 months for real estate.
Calculating Short-Term Capital Gains Tax .
You can know your actual gain if you're certain that asset is in the short-term category. It uses a straightforward formula:
Short-Term Capital Gain = Selling Price - (Acquisition Cost + Sale Expenses)
Selling Price: The amount you received for the asset's sale.
Acquisition Cost: The initial amount you spent on the item.
Costs Associated with the Sale: These comprise any brokerage costs, property stamp duty, legal fees, etc., associated with the sale.
Utilize the Relevant Tax Rate:
Applying the appropriate STCG tax rate based on the asset type is the last step after determining your gain:
Shares and Equity Mutual Funds: At the moment, short-term gains from these assets are subject to a flat 20% rate.
Real estate: Any short-term profits from the sale of real estate get included in your overall income and are subject to taxation by your income tax bracket.
Various Assets: Since tax rates differ for several assets, it's necessary to consult a tax professional or refer to the instructions provided by the Income Tax Department.
As an illustration, suppose you sold some shares you had for Rs. 1,00,000 after holding them for six months (short-term). In addition to paying Rs. 2,000 in brokerage costs during the transaction, you paid Rs. 80,000 for them.
Holding Period: Short-term (6 months < 12 months)
Rs. 1,00,000 – (Rs. 80,000 + Rs. 2,000) = Rs. 18,000 is the gain.
Your STCG tax is Rs. 3,600, or Rs. 18,000 x 20% applying the tax rate. These procedures will help you determine your short-term capital gains tax and make appropriate investment plans by enabling you to comprehend the applicable tax rates. For quick and simple calculations on what short-term capital gains tax is for you, you can also utilise an online calculator.
How Much Short-Term Capital Gain is Tax-Free
According to the most recent amendments in the Union Budget 2024, the previous exemption ceiling of Rs. 1 lakh per year has risen to Rs. 1.25 lakh. No particular STCG exemption exists. You can offset short-term capital gains against short-term losses to lower your tax obligation.
Adjustment of STCG Against Basic Exemption Limit under Section 111A
You can offset your short-term capital gains against the shortfall in your basic exemption limit if, after all the deductions, your total income is less than the basic exemption limit (i.e., the basic exemption limit is not exhausted) and you are an Indian resident for income tax purposes. The remaining amount will only be subject to u/s 111A taxation. Under section 111A, non-residents would not be eligible to claim the exemption limit and would have to pay a 15% tax on such STCG (20% starting on July 23, 2024).
Illustration 1: X has a short-term capital gain of Rs 4 lakh from the sale of equity shares, but his taxable salary income is just Rs 1 lakh. In addition, he earns Rs 50,000 from other sources. Determine the appropriate STCG tax.
Total Income = Rs 1 lakh + Rs 4 lakh + Rs 50,000= Rs. 5.5 lakh
Beyond capital gains income, X’s total taxable income is Rs. 1.5 lakhs. The short-term capital gain on the sale of equity can be lowered by Rs 1 lakh since there is a Rs 1 lakh gap in the absorption of Ajay's basic income tax exemption limit. This computation was made under the previous administration, which assumed that the baseline exemption level was Rs. 2,50,000.) A short-term capital gain of Rs 3 lakh (Rs 4 lakh to Rs 1 lakh) will be subject to tax at the fixed rate of 15% (20% starting on July 23, 2024). If he were a non-resident, he would not be eligible to claim the exemption limit for such an STCG and would have to pay a 15% tax on the full value of the STCG (20% starting on July 23, 2024).
Illustration 2: Y, a 61-year-old resident, receives Rs. 5,000 a month in pension payments. In January 2025, he bought shares of A Ltd., which he later sold in March 2025. An STCG of Rs. 1.5 lakh resulted from this sale. Additionally, he made an STCG of Rs. 1.3 lakh on a property transaction.
Y’s three sources of income are:
Pension= Rs. 60,000
STCG under Section 111A= Rs. 1.5 lakh
Other STCG (on sale of property) = Rs. 1.3 lakh
Rs. 1.9 lakhs is the taxable income, excluding capital gains income. The remaining Rs. 60,000 can be deducted from capital gains income (Rs. 2,50,000 less Rs. 1,90,000). As a result, he must pay 20% tax and a 4% cess on the remaining Rs. 90,000 (1.5 lacs-60,000) in STCG.
Set Off & Carry Forward of Losses
A short-term capital loss (STCL) occurs when a person sells listed stock shares, units of debt mutual funds, or equity-oriented mutual fund units at a loss within a year.
Under Indian income tax regulations, taxpayers can deduct short-term capital gains (STCG) from a single capital asset.
It is deducted from another capital asset's Long-Term Gains (LTCG). Within the same fiscal year, a person may utilize an STCL incurred from the sale of one capital asset to offset gains on the sale of another asset.
A taxpayer may also carry forward any leftover STCL for eight additional years. In the future, it can compete against STCG and LTCG.
No Deductions from STCG u/s 80C-80U
Sections 80C through 80U of the Income Tax Law do not provide any deduction from the Short-Term Capital Gains mentioned in Section 111A.
On short-term capital gains that are not protected by section 111A, the investor may, nevertheless, claim this deduction.
For instance, in January 2025, Mr. A, a resident who is 59 years old, bought shares of ABC Ltd. and sold them in March 2025 (STT gets charged). An STCG of Rs. 1.5 lacs resulted from this sale. He has no other sources of income save STCG. He wishes to claim a deduction under section 80C for the Rs. 1.5 lacs he invested in the Public Provident Fund. Since it is a gain mentioned in section 111A, Mr. A cannot claim such a deduction under 80C against the STCG in the current circumstance. His taxable income, which can be deducted from the basic exemption level, will be Rs. 1.5 lacs.
No Indexation benefit for STCG
The sale of short-term capital assets does not qualify for the indexation advantage.
Indexation is determining an asset's cost while accounting for inflation.
It only applies to long-term investments and is computed using the Cost Inflation Index (CII). However, the indexation benefit was eliminated for long-term assets as well as July 23, 2024.
Conclusion
Understanding short-term capital gains tax is crucial for minimizing tax obligations and making wise investment choices. You may maximize your investment returns and reach your financial objectives by keeping abreast of the most recent tax laws, employing tax-saving techniques, and hanging onto assets for as long as feasible.
FAQ
Q1. What are the expenses allowed for STCG?
Certain costs directly associated with the asset's sale can be subtracted when calculating STCG. These are transaction costs, brokerage fees, and stamp duty (for real estate transactions). The deductions decrease both the amount of STCG chargeable and the taxable profit.
Q2. How to minimize short-term capital gains tax?
The following tactics can help you reduce your short-term capital gains tax:
• Tax-loss harvesting: To offset profits from better investments, sell those losing money.
• Hold assets for a long time: To be eligible for reduced long-term capital gains tax rates, try to hold assets for long.
• Invest in tax-saving instruments: To lower your overall tax burden, consider investing in tax-saving choices such as ELSS mutual funds.
Q3. What is Section 111A?
Under Section 111A, STCG on certain capital assets, like listed equity shares, units of equity-oriented funds, or business trusts units, are subject to concessional rates of 15% on STCG as long as STT is paid. As of July 23, 2024, the short-term capital gain tax under Section 111A has risen to 20%.
Q4. Is the benefit of a basic exemption limit available for NRI in the case of STCG u/s 111A?
No, the basic exemption limit for STCG under section 111A will not be available to non-resident Indians (NRIs).
Q5. Are there any exemptions on Short Term capital gains?
Yes, Section 54 of the Income Tax Act allows for some exclusions for short-term capital gains.
Q6. How much short-term capital gain is tax free on property?
If the profit on a short-term capital gain from the sale of real estate is less than Rs. 2,50,000, Indian citizens under 60 are exempt from paying income tax. The increased exemption level of Rs. 3,00,000 for property sales applies to residents between 60 and 80.
Q7. Do we need to pay tax on short-term capital gain?
Any property owned for less than 24 months that is sold results in a short-term capital gain (STCG). Taxed at the applicable slab rates for the taxpayer, the STCG is subject to standard income tax rates. STCG is not eligible for any indexation advantages on the property.
Q8. How much short-term capital gain is tax free?
According to the most recent amendments in the Union Budget 2024, the previous exemption ceiling of Rs. 1 lakh per year has risen to Rs. 1.25 lakh.
Q9. Do I need to pay STCG tax on the sale of inherited property?
Yes, short-term capital gains tax will apply to gains from the sale of inherited property within 24 months of ownership.
Q10. Is STCG tax applicable on equity shares and mutual funds?
Yes, equity shares and equity-oriented mutual funds held for less than a year are subject to short-term capital gains tax. Section 111A of the Income Tax Act states that the appropriate tax rate is 20%.
Q11. What is the difference between 112A and 111A?
A listed share's long-term capital gains get taxed under Section 112A, and its short-term capital gains get taxed under Section 111A.
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