Investors want to yield high profits, but they must not forget that they can also face tax liabilities under the Income Tax Act. One of the many facets of personal finance is capital gains taxation. Profits from investments are classified as capital gains under the Income Tax Act, with differing holding periods to decide if the classification is short-term or long-term. Market investments and their taxes are greatly impacted by the Union Budget 2024–25, which increased short-term capital gains tax and changed holding period definitions.
Understanding short-term capital gains taxes is essential for investors thinking about stock market investments, mutual funds, and real estate deals in addition to bonds before financial planning is successful.
This guide will help you dodge the tax effects of your assets and put yourself under unnecessary stress. Read the details on the taxation of short term capital gain after the recent changes introduced in the Union Budget 2024-25.
What are Short-Term Capital Gains (STCG)?
Short-term capital gains are often abbreviated as STCG. These are the profits that investors earn from the sale of capital assets for one year or less. A capital gain occurs when you sell an asset for more than its purchase price. Yet, there is this detail about the holding period that tells which category they fall in.
There are also some exceptions, though, such as listed securities and equity-oriented funds. These two types are taken as short-term if they are held for less than or equal to 12 months.
STCG Holding Period for Different Assets
| Asset Type | Holding Period for STCG |
| Equity shares & equity mutual funds | Less than 12 months |
| Real estate (land, house property) | Less than 24 months |
| Unlisted shares | Less than 24 months |
| Bonds, gold, and other assets | Less than 36 months |
Key Tax Changes in 2025
- Market-linked debentures and specified debt funds are always taxed as STCG, regardless of the holding period.
- Unlisted bonds & debentures sold after July 23, 2024, are always STCG.
Examples of Short-Term Capital Gains
- Selling stocks within 6 months → STCG
- Selling a house after 20 months → STCG
- Selling gold ETFs after 18 months → STCG
Assets that remain invested exceeding a certain limit are classified as long-term capital assets. Therefore, they become liable to different taxes.
Taxation of Short Term Capital Gains
STCG is generally taxed at the taxpayer’s slab rate. However, specific assets enjoy concessional tax rates. Short-term capital gains on listed equity shares, equity-oriented fund units, and business trust units will be taxed at a 20% tax rate starting on July 23, 2024. Other assets (real estate, land, and unlisted shares) are subject to standard slab rates of taxation applicable to the taxpayer.
Calculation of Short-Term Capital Gains
STCG is calculated using the formula:
- Let us take a case of STCG on Stocks
Case: A purchase of 100 shares of a company at ₹500 per share.
6 months later, it sold at ₹700 per share
If you solve it:
Sale price = ₹70,000 (100 ₹700)
Purchase price = ₹50,000 (100 ₹500)
Brokerage & expenses = ₹500
Note: These equity shares will be taxed at 15% before July 2024 and 20% after July 2024.
- Let us take a case of STCG on Real Estate,
Case: A purchased a flat for ₹40 lakh.
After 18 months, sold for ₹55 lakh
If you solve it:
Sale price = ₹55 lakh
Purchase price = ₹40 lakh
Brokerage, registration, legal fees = ₹2 lakh
Note: The real estate STCG is taxed based on the person’s income slab. The person in the 30% tax bracket will pay ₹3.9 lakh in tax (30% of ₹13 lakh).
STCG Calculation
Before the taxation of short term capital gain, there is a procedure of calculating STCG that involves several steps:
| Particulars | Amount | Amount |
| The full value of consideration | xxx | |
| Less: Expenses related to such transfer | (xxx) | |
| Net sale consideration | xxx | |
| Less: Acquisition Cost | xxx | |
| Less: Improvement Cost (If any) | xxx | |
| Short Term Capital Gains (STCG) | xxx | |
| Less: Exemptions under Section 54B/54D | xxx | |
| Taxable short term capital gains amount | xxx |
Changes in Budget 2024-25
The Union Budget is out with some clear changes to the taxation of capital gains. The changes are made to simplify the taxation of short term capital gain structure and make sure that there is better fairness in terms of taxation. The table will ease the understanding of the changes along with the dates:
| Asset Type | Tax Treatment | Effective Date |
| Unlisted Debentures and Bonds | Always considered short-term and taxed at slab rates despite the holding period. | July 23, 2024 |
| Units of Specified Mutual Funds (Debt/Hybrid) | Taxed as short-term capital gains at slab rates, irrespective of the holding period. | April 1, 2023 |
Exemptions on Short-Term Capital Gain
Taxpayers can reduce their STCG tax with the help of exemptions available under Sections 54B and 54D of the Income Tax Act:
- Section 54B: If you sell agricultural land that was used for farming and use the money to buy other agricultural land, you can get a tax exemption.
- Section 54D: If you sell industrial land or buildings used for business and reinvest the money in another industrial property, you can also get a tax exemption.
These rules are there to help taxpayers. Now, they can reinvest in similar assets and lower their tax burden at the same time.
In a Nutshell
So, now it is very clear that if you want smart financial planning and better investment decisions, you have to understand the STCG tax. You have to know how short-term capital gains are taxed to move further with any plan. There are some key changes that the 2024-25 Budget has introduced regarding taxation of short term capital gain that you have to keep in mind, too. This is a way to cleverly manage your taxes and maximize your returns.
Moreover, one must not refrain from consulting a tax expert. These professionals know all the ups and downs in the market and will be able to provide advice based on your particular financial situation. Stay informed and plan so that you can handle your taxation of short term capital gain more easily and make better investment choices.
