EN
Short-term capital gains (STCG) tax applies to profits earned from selling equity investments held for less than a specified holding period. For investors, understanding how this tax is calculated is important because it can affect overall returns from shares and other eligible equity investments.
This article discusses the STCG tax on equity investments, the calculation of the tax, the applicable tax rate, the treatment of capital losses, and some errors to be avoided by investors.
Key Takeaways
- STCG applies to equity shares held for up to 12 months before being sold.
- The current STCG tax rate is 20% for eligible equity transactions covered under Section 111A.
- LTCG applies when eligible listed equity shares are held for more than 12 months, with different tax treatment.
- Capital losses can help reduce taxable gains, subject to applicable set-off and carry-forward rules.
- Keeping accurate records is important for calculating capital gains and filing your income tax return correctly.
What is Short-Term Capital Gain on Equity Investments?
Short-term capital gain is the profit realised on the sale of investments held for a short duration.
For equity shares traded on stock exchanges, the period used to determine whether a gain is short-term or long-term is usually 12 months.
For example, suppose an investor buys 200 shares of a listed company in April 2025 at ₹450 per share, paying ₹500 as brokerage on the purchase. In September 2025, the same investor sells all 200 shares at ₹520 per share on a recognised stock exchange, paying ₹600 as brokerage, with Securities Transaction Tax (STT) paid on the sale as required.
| Particulars | Amount |
| Sale consideration (200 × ₹520) | ₹1,04,000 |
| Less: Brokerage on sale | ₹600 |
| Net sale consideration | ₹1,03,400 |
| Less: Purchase cost (200 × ₹450) | ₹90,000 |
| Less: Brokerage on purchase | ₹500 |
| Total short-term capital gain | (₹1,03,400- ₹90,000) = ₹12,900 |
Since the shares were held for less than 12 months, sold through a recognised stock exchange, and STT was paid on the sale, the ₹12,900 profit qualifies as a short-term capital gain taxable under Section 111A.
However, not all types of share sales are subject to the 20% special rate.
-
Under the Finance Act 2025, short-term capital gains (STCG) taxed under Section 111A cannot be offset by the Section 87A rebate.
-
Many retail investors mistakenly assume that if their total taxable income falls below the ₹12 lakh threshold under the new tax regime, their tax liability will be zero.
-
However, this rebate does not apply to Section 111A STCG, meaning you will still owe tax on these gains regardless of your overall income level.
For listed equity shares, STT must generally be paid on the sale of transaction. For equity-oriented mutual fund units and business trust units, the applicable STT conditions must also be satisfied. If these conditions are not met, the short-term capital gain is taxed under the relevant provisions and applicable rates.
This is one reason not to assume that all profits from short-term shares will be taxed at 20%. The exact treatment will depend on various factors such as the type of security, the transaction and relevant tax provisions.
How is Short-Term Capital Gain Calculated?
The calculation of short-term capital gains (STCG) on the sale of shares is relatively simple. This involves subtracting the purchase price from the sale price, while eligible expenses incurred in connection with the transfer may be included, if any.
Let us understand this with a simple example.
Formula: STCG is calculated by subtracting the total purchase price and eligible transfer expenses (such as brokerage and transaction charges) from the final sale price.
Short-Term Capital Gain = Sale Price − Purchase Price − Eligible Transfer Expenses
Suppose you purchased shares for ₹2,00,000 and later sold them for ₹2,60,000.
| Particulars | Amount |
| Purchase cost | ₹2,00,000 |
| Sale value | ₹2,60,000 |
| Short-term capital gain | ₹60,000 |
The capital gain is calculated as:
₹2,60,000 − ₹2,00,000 = ₹60,000
If the transaction qualifies for Section 111A, and assuming the applicable STCG tax rate is 20%, the tax before cess and surcharge would be:
| Particulars | Calculation | Amount |
| Short-term capital gain | — | ₹60,000 |
| Applicable tax rate | — | 20% |
| Tax on STCG | ₹60,000 × 20% | ₹12,000 |
The tax payable before cess and surcharge would be ₹12,000.
Investors should maintain records of the purchase price, sale price, transaction dates, and eligible related expenses. Broker-issued contract notes and annual tax statements can be particularly useful when calculating capital gains and preparing your income tax return.
Adjustment Against Basic Exemption Limit
For resident individuals, if your other ordinary income does not fully exhaust your basic exemption limit, the unused portion of the limit can be adjusted against your Section 111A short-term capital gains before the flat 20% tax rate is applied.
Note: In addition to the base 20% tax rate, a mandatory 4% Health and Education Cess applies to the tax amount. Furthermore, the surcharge on equity STCG and LTCG is capped at a maximum of 15% regardless of your higher income slab, providing a favourable tax ceiling for high earners on equity capital gains.
What Happens if Holding Period is Beyond 12 Months?
The holding period is the most critical factor in determining whether you have a short-term or long-term capital gain.
For listed shares, a holding period of 12 months marks the boundary for long-term classification. If shares are held for more than 12 months and other conditions are met, the resulting profit is classified as a Long-Term Capital Gain (LTCG) rather than an STCG.
LTCG taxation follows a different framework than STCG. Under Section 112A, the LTCG tax rate is 12.5% on gains exceeding the annual exemption threshold of ₹1.25 lakh. While holding periods heavily influence tax liability, investment decisions should balance tax efficiency with broader financial goals.
Difference Between STCG and LTCG
| Basis | STCG | LTCG |
| Meaning | Gain from selling equity held for up to 12 months | Gain from selling equity held for more than 12 months |
| Tax Rate | 20% for eligible equity transactions | 12.5% on eligible gains above the applicable exemption threshold |
| Tax Provision | Section 111A | Section 112A |
| Best Suited For | Short-term investors/traders | Long-term investors |
| Capital Loss Set-off | STCL can be set off against both STCG and LTCG | LTCL can be set off only against LTCG |
Also Read About: What Is Long-Term Capital Gains Tax?
Can Loss in Shares Reduce STCG?
Yes, if the sale of shares results in a negative return rather than a gain, it is classified as a capital loss.
Capital losses can be beneficial from a tax perspective under the set-off and carry-forward rules.
A short-term capital loss (STCL) can usually be set off against short-term as well as long-term capital gains, depending on the provisions applicable.
In contrast, long-term capital loss can usually be set off only against long-term capital gains.
Where the total loss is not fully offset in the same financial year, eligible capital losses can usually be carried forward into future years in accordance with the tax law.
This is especially important for active investors. If you have made a profit of ₹50,000 from short-term capital gains in one stock but at the same time incurred a loss of ₹20,000 from another eligible investment, then the loss can be used as an offset against the eligible capital gains.
Investors need to keep track of their records properly and claim the losses on their income tax returns.
Which ITR Should You Use for Short-Term Capital Gains on Equity?
In addition to the points stated above, investors should also be mindful of which type of income tax return to file. According to the Income Tax Department, one cannot use ITR-1 if the taxpayer has any short-term capital gains.
The ITR form depends on the taxpayer's total income and condition. Thus, for instance, taxpayers who have capital gains but no income from business or profession will have to file ITR-2, while other cases will require a different form. It is therefore important not to choose an ITR form simply because it appears easier. Filing the wrong form can create unnecessary complications.
Mistakes Investors Should Avoid During Tax Filing
- Confusing intraday trading with STCG: Intraday (same-day) equity trading is not short-term capital gain. It is classified as speculative business income under Section 43(5), taxed at regular slab rates, and strictly requires filing ITR-3 (not ITR-2). Buying and selling on the same day never qualifies for Section 111A STCG treatment.
- Using the wrong tax rate: Check the updated 20% tax rate for calculating STCG under Section 111A.
- Ignoring small capital gains: Even a small profit, such as ₹5,000 or ₹10,000, shouldn’t be ignored just because the amount is small. It needs to be declared as taxable.
- Failing to maintain records: Keep all necessary documents like broker statements, contract notes, and dates of purchase and sale. This will help you calculate capital gains and file your tax return.
Conclusion
The short-term capital gains tax is an important element of equity investment in India. For all such listed equity investments under Section 111A, the STCG tax rate is 20% for sales after July 23, 2024. The tax depends on the nature of the investment, the duration, and the nature of the transaction. Just because one makes a profit from his shares does not mean that each transaction must be taxed in the same way.
Also Read About: What is Capital Gain Tax?
