Tax on short-term capital gains for equity and mutual funds are discussed below –
For stocks/equity: 15% of the gain
The gains you make by executing buy/sell transactions on recognized stock exchanges are subject to STT. If the holding period is more than one day but no longer than 12 months, then STCG will apply.
If shares are transferred by off-market transfers, where STT is not paid, the applicable STCG will be taxed as per your tax slab rate. This means that if you are earning above Rs. 10,00,000/- a year in salary, STCG will be taxed at 30%. However, if there is no other income for the year and assuming the amount of STCG to be Rs 1 lakh, then this would not be subject to 15% flat taxation. It only applies when total yearly income is higher than Rs 2.5 lacs.
For equity mutual funds (MF): 15% of the gain
For equity delivery based trades, any gain in investment in equity-oriented mutual funds held for shorter than 1 year is STCG and is taxed at 15% of the gain. Do bear in mind that a fund is regarded as Equity based if 65% of the funds are invested in domestic companies.
For non-equity oriented/Debt MF: As per your individual tax slab
The Union Budget of 2014 ushered in a major shift when it comes to non-equity mutual funds. To be regarded now as long term capital gain, investments must remain in the fund for at least three years. For any gains accrued on investments held less than that, they will be classified as STCG and hence will have to be included with other business earnings when determining taxes according to one’s income tax slab.
If you are earning around Rs 800,000/- per annum through your occupation/salary and had an STCG of Rs 100,000/- from debt funds, it would push your total income to Rs 9,00,000/- and you will be liable to pay 20% in taxes.
– Days of holding
Investors should be aware of the large tax gap between short-term capital gains (STCG) and long-term capital gains (LTCG). If shares are sold within 360 days of purchasing, a 15% tax is due on any profits. However, if they remain in the investor’s portfolio for an additional 5 days—bringing the total holding period to one year or 365 days—the entire gain becomes exempt from taxation as it would qualify as LTCG.
It is important for investors to track the length of time they have owned their stock holdings. If more than one purchase has been made of the same stock, FIFO (First in First out) will be applied to calculate the period.
Allow me to explain with a different scenario:
Let’s consider a situation where you purchased 200 shares of XYZ Company on March 15, 2022, at a price of Rs. 1,000 per share. Subsequently, on June 1, 2022, you acquired an additional 100 shares at Rs. 1,200 per share.
After a year, on May 1, 2023, you decided to sell 250 shares at a price of Rs. 1,500 per share.
Following the First-In-First-Out (FIFO) method, the shares bought on March 15, 2022 (200 shares), and 50 shares from the June 1, 2022 purchase should be considered as sold.
Hence, for the shares purchased on March 15, 2022, the gain would be Rs. 500 (Rs. 1,500 – Rs. 1,000) per share, resulting in a total gain of Rs. 100,000 (Rs. 500 x 200 shares). Since this falls under long-term capital gain (LTCG), there would be zero tax liability on this gain.
For the shares bought on June 1, 2022, the gain would be Rs. 300 (Rs. 1,500 – Rs. 1,200) per share, resulting in a total gain of Rs. 15,000 (Rs. 300 x 50 shares). Since this falls under short-term capital gain (STCG), there would be a tax liability of 15% on this gain.