Short-term Capital Gain Tax on Shares

Investing in equity shares can yield high profits, but also attract tax liabilities under the Income Tax Act.

The Income Tax Act categorises profits from share sales as capital gains, with classifications of short term or long-term based on holding periods.

What is Short term Capital Gain Tax on Shares

When you sell equity shares listed on a stock exchange within 12 months of purchasing them, you may incur a short term capital gain (STCG) or a short term capital loss (STCL). Furthermore, if you sell shares after holding them more than 12 months, they attract long-term capital gains (LTCG)

A short term capital gain occurs when you sell shares at a higher price than their purchase price. Currently, short term capital gains on shares are taxed at a rate of 20% under Section 111A with effect from 23 July 2024.

Budget 2024 Updates on STCG Tax on Shares

The Union Budget 2024-25 has made significant changes to the classification of assets, short term capital gains tax and their holding periods. 

• Assets will be classified based on two holding periods: 12 months and 24 months, eliminating the 36 months. Shares held for less than 12 months are classified as short term.
• The tax rate for STCG on listed equity shares, units of equity-oriented funds and units of business trusts has increased from 15% to 20%. 
• Other financial and non-financial assets held short term will continue to be taxed at the applicable income tax slab rates. Unlisted bonds and debentures, market-linked debentures, debt mutual funds and debt ETFs are not classified as short term capital gains, regardless of their holding periods.

Calculation of Short Term Capital Gain Tax on Shares

Let’s say you purchased 1000 shares of a particular company at ₹200 per share in July 2024. Now you sell the same shares at a profit of ₹80 per share i.e., a share price of ₹280 in October 2024. Furthermore, you paid a brokerage of ₹2,000.

Initial investment amount = ₹200 x 1000 = ₹2,00,000

Full value of consideration = ₹280 x 1000 = ₹2,80,000 

Here’s how you can calculate your short term capital gains and tax liability -

Understanding short term capital gains tax on shares is crucial for investors, especially with the changes introduced in Budget 2024. The increase in tax rates and redefined holding periods significantly impact investment strategies. 

By staying informed about these updates, exemptions and calculation methods, you can better manage your tax liabilities and make informed financial decisions.