{"id":3555,"date":"2021-07-28T15:35:34","date_gmt":"2021-07-28T10:05:34","guid":{"rendered":"https:\/\/www.tickertape.in\/blog\/?p=3555"},"modified":"2022-02-10T16:11:41","modified_gmt":"2022-02-10T10:41:41","slug":"short-term-capital-gain-tax","status":"publish","type":"post","link":"https:\/\/www.tickertape.in\/blog\/short-term-capital-gain-tax\/","title":{"rendered":"Short Term Capital Gains Tax Guide 2022: Overview, Calculation and  More"},"content":{"rendered":"\n<p>People <a href=\"https:\/\/www.tickertape.in\/blog\/why-should-you-prioritise-investing\/\">invest<\/a> capital for a certain period of time with the probability of future profit. This period can be short term, or long term, depending on the holding tenure. Land, for example, is a long term asset, typically held for many years before the sale. However, shares bought and sold in under a year is a short term asset.<\/p>\n\n\n\n<p>Taxes on the gains accrued from these transactions are also classified as <a href=\"https:\/\/www.tickertape.in\/blog\/long-term-capital-gain-on-share\/?utm_source=blog&amp;utm_medium=article\">long term capital gains<\/a> (on transactions held for a longer duration) and short term capital gains (on transactions held for a shorter duration). This article explores the meaning of short term capital gains on <a href=\"https:\/\/www.tickertape.in\/blog\/shares\/?utm_source=blog&amp;utm_medium=article\">shares<\/a>, its components calculation, and its denotation.<\/p>\n\n\n\n<p><strong>This article covers:<\/strong><\/p>\n\n\n\n<ul><li><a href=\"#short\">Short term capital gain tax on shares<\/a><\/li><li><a href=\"#components\">Components of Short term capital gain tax on shares<\/a><\/li><li><a href=\"#calculation\">Calculation of Short term capital gain tax on Shares<\/a><\/li><li><a href=\"#the\">The denotation of Short term capital gain on shares<\/a><\/li><\/ul>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_66_1 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.tickertape.in\/blog\/short-term-capital-gain-tax\/#Short-term-capital-gain-tax-on-shares\" title=\"Short term capital gain tax on shares\">Short term capital gain tax on shares<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.tickertape.in\/blog\/short-term-capital-gain-tax\/#Components-of-short-term-capital-gain-tax-on-shares\" title=\"Components of short term capital gain tax on shares\">Components of short term capital gain tax on shares<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.tickertape.in\/blog\/short-term-capital-gain-tax\/#Calculation-of-short-term-capital-gain-tax-on-shares\" title=\"Calculation of short term capital gain tax on shares\">Calculation of short term capital gain tax on shares<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.tickertape.in\/blog\/short-term-capital-gain-tax\/#The-denotation-of-short-term-capital-gain-on-shares\" title=\"The denotation of short term capital gain on shares\">The denotation of short term capital gain on shares<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\" id=\"short\"><span class=\"ez-toc-section\" id=\"Short-term-capital-gain-tax-on-shares\"><\/span><strong>Short term capital gain tax on shares<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>A share is a unit of a company&#8217;s capital. You can buy these shares as a part of the company\u2019s <a href=\"https:\/\/www.tickertape.in\/blog\/all-you-need-to-know-about-ipos\/?utm_source=blog&amp;utm_medium=article\">IPO<\/a>, or afterwards, in the open market. If you then sell these shares within 12 mth of purchase at a profit, you attract a short term capital gains tax at the rate of 15%.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"components\"><span class=\"ez-toc-section\" id=\"Components-of-short-term-capital-gain-tax-on-shares\"><\/span><strong>Components of short term capital gain tax on shares<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><a href=\"https:\/\/www.tickertape.in\/blog\/capital-gain-tax-on-shares\/\">Short term capital gain tax<\/a> on shares is governed by <a href=\"https:\/\/www.tickertape.in\/blog\/section-111a-income-tax-act\/\">Section 111A<\/a> of the <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-income-tax\/\">Income Tax<\/a> Act. As per Section 111A of the Income Tax Act, <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-short-term-capital-gain-on-shares\/\">short term capital gain tax on shares<\/a> is attracted when the following conditions are fulfilled.<\/p>\n\n\n\n<ul><li><strong>Gains from shares, both <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-equity\/\">equity<\/a> and preference, of companies that are listed on stock exchanges such as BSE or <a href=\"https:\/\/www.tickertape.in\/blog\/national-stock-exchange\/\">NSE<\/a><\/strong>:<br>Usually, a company issues either <a href=\"https:\/\/www.tickertape.in\/blog\/difference-between-equity-share-and-preference-share-all-you-need-to-know\/?utm_source=blog&amp;utm_medium=article\">preference shares or equity shares<\/a>. The <a href=\"https:\/\/www.tickertape.in\/blog\/what-are-equity-shares-meaning-types-features-limitations-and-more\/?utm_source=blog&amp;utm_medium=article\">equity shares<\/a> are paid at the end, in the list of expenses. Those shares which are not <a href=\"https:\/\/www.tickertape.in\/blog\/what-are-equity-shares-meaning-types-features-limitations-and-more\/\">equity shares<\/a> are <a href=\"https:\/\/www.tickertape.in\/blog\/preference-share\/\">preference shares<\/a>, they are preferred over equity. Short term capital gains tax applies to both <a href=\"https:\/\/www.tickertape.in\/blog\/shares\/\">types of shares<\/a>. Usually, the companies which go public, require to be listed on the stock exchange. The National Stock Exchange and the Bombay Stock Exchange are the most active stock exchanges in India. Thus, the <a href=\"https:\/\/www.tickertape.in\/blog\/shareholders\/\">shareholders<\/a> of those companies which are listed on either National Stock Exchange or Bombay Stock Exchange, have gained a profit from selling those shares, they are required to pay tax.<\/li><li><strong>Equity oriented <a href=\"https:\/\/www.tickertape.in\/blog\/mutual-funds\/\">mutual funds<\/a><\/strong>:<\/li><li>A <a href=\"https:\/\/www.tickertape.in\/blog\/types-of-mutual-funds-a-quick-overview\/?utm_source=blog&amp;utm_medium=article\">mutual fund<\/a> is a pool of money invested in multiple securities such as bonds, shares, debentures, and so on. An equity-oriented mutual fund, for example, is a mutual fund where 65% of the portfolio consists of equity shares. The sale of such mutual funds and the profit earned on such sales attract tax under the short term capital gain tax on shares.<\/li><li><strong>Unlisted Shares:<\/strong><\/li><li>In the case of shares that are not listed, the gain is considered short term if they are held for less than two years.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"calculation\"><span class=\"ez-toc-section\" id=\"Calculation-of-short-term-capital-gain-tax-on-shares\"><\/span><strong>Calculation of short term capital gain tax on shares<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The method for calculating short term capital gain tax on shares is as follows:&nbsp;<\/p>\n\n\n\n<p><strong>STCG = Final value of sale of an asset \u2013 (original value of the asset bought + expenses incurred in the process of transfer\/sale value)<\/strong><\/p>\n\n\n\n<p>A tax rate of 15% is applicable on short term capital gains on shares. <\/p>\n\n\n\n<p>Consider these following additional points when you\u2019re considering short term capital gains tax on shares:<\/p>\n\n\n\n<ul><li>If a person does not fall under the basic exemption limit of Income Tax (Rs 2.5 lakh, in most cases), the person is entitled to set off his or her short term capital gain. This set-off can be used to offset the amount of the basic exemption limit shortfall.<\/li><\/ul>\n\n\n\n<ul><li>If the total income exceeds Rs 2.5 lakh, the tax is liable to be paid. For example, assume, Mr ABC, a 35-year-old Indian investor, is a salaried individual employed at XYZ Ltd and has an annual salary of Rs 6,00,000.&nbsp;<\/li><li>In Jan 2021, he invested in 1,000 equity shares. Mr ABC paid Rs 10 on every share he bought. He decided to sell the shares off in Jul 2021, after 7 mth, at the rate of Rs 15 per share (at Rs 1 brokerage charge per share).&nbsp;The broker sold all of the shares on the Bombay Stock Exchange, and STT costs were imposed. The tax liability would be the salary of Mr ABC plus the short term capital gain tax. Here the short term capital gain is:<\/li><li>1,000 equity shares x Rs 15 per share = Rs 15,000 &#8211; (10,000 +1,000) = Rs 4,000<\/li><\/ul>\n\n\n\n<p>Thus, Rs 4,000 is the short term capital gain, so 15% of Rs 4,000 and the tax liability on the salary of income will be the total tax liability of Mr ABC.<\/p>\n\n\n<span class='bctt-click-to-tweet'><span class='bctt-ctt-text'><a href='https:\/\/twitter.com\/intent\/tweet?url=https%3A%2F%2Fwww.tickertape.in%2Fblog%2Fshort-term-capital-gain-tax%2F&#038;text=Investment%20reminder%3A%20There%20is%20a%20provision%20of%20short%20term%20capital%20loss%20on%20shares%2C%20in%20case%20the%20shares%20are%20sold%20at%20a%20loss%3B%20where%20the%20loss%20can%20be%20deducted%20from%20the%20shareholder%27s%20overall%20tax%20liability.&#038;via=TickertapeIN&#038;related=TickertapeIN' target='_blank'rel=\"noopener noreferrer\">Investment reminder: There is a provision of short term capital loss on shares, in case the shares are sold at a loss; where the loss can be deducted from the shareholder&#039;s overall tax liability. <\/a><\/span><a href='https:\/\/twitter.com\/intent\/tweet?url=https%3A%2F%2Fwww.tickertape.in%2Fblog%2Fshort-term-capital-gain-tax%2F&#038;text=Investment%20reminder%3A%20There%20is%20a%20provision%20of%20short%20term%20capital%20loss%20on%20shares%2C%20in%20case%20the%20shares%20are%20sold%20at%20a%20loss%3B%20where%20the%20loss%20can%20be%20deducted%20from%20the%20shareholder%27s%20overall%20tax%20liability.&#038;via=TickertapeIN&#038;related=TickertapeIN' target='_blank' class='bctt-ctt-btn'rel=\"noopener noreferrer\">Click To Tweet<\/a><\/span>\n\n\n<h2 class=\"wp-block-heading\" id=\"the\"><span class=\"ez-toc-section\" id=\"The-denotation-of-short-term-capital-gain-on-shares\"><\/span><strong>The denotation of short term capital gain on shares<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>According to the Income Tax, capital can be short term and long term, depending on its tenure. Usually, short term capital assets are referred to those shares that are held for 12 mth or less. This short term capital gain on shares creates a liability of tax on the seller. There is also a provision of short term capital loss on shares, in case the shares are sold at a loss. In this scenario, the shareholder can set off the loss while computing their total tax liability.<\/p>\n\n\n\n<p>Before investing in shares, a person should grasp the knowledge of all tax formalities. It is especially helpful in planning for taxation and balancing the return worth of an investment in line with the taxation aspects. While some short term investments might seem to give high returns, it&#8217;s only in line with short term capital gains tax can one know if they are really worth investing in.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Looking to know the meaning of short term capital gain tax and how to calculate it? Click here to know more about tax on short term gains and calculation of STCG<\/p>\n","protected":false},"author":45,"featured_media":3558,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"categories":[8,1741],"tags":[459,456],"acf":[],"modified_by":"Ayushi Mishra","jetpack_featured_media_url":"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2021\/07\/Stock-Market-2.png?wsr","_links":{"self":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/3555"}],"collection":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/users\/45"}],"replies":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/comments?post=3555"}],"version-history":[{"count":8,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/3555\/revisions"}],"predecessor-version":[{"id":6938,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/3555\/revisions\/6938"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media\/3558"}],"wp:attachment":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media?parent=3555"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/categories?post=3555"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/tags?post=3555"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}