image of Capital Gain Tax STCG & LTCG

Capital Gain Tax – STCG & LTCG

Earnings or gains create from the transfer of capital asset such as shares; bonds, mutual funds, real estate, gold, etc. are counted as capital gain. So, you need to have disclosed the profits in income tax returns (ITR) and pay tax on these gains.

Such gains are of two types—short term capital gain (STCG) and long term capital gain (LTCG) depending on the period of holding of an asset. Therefore, STCG and LTCG are taxed at different rates as per the income tax laws.

What is capital gain tax?

An investor or individual or company is liable to pay tax after selling an asset. But, only if you hold an asset with appreciating the value and do not sell it, then you do not have to pay capital gains tax.

Therefore, anyone who sells a capital asset must know that capital gains tax may apply on it. Actually, this capital gains tax is a government income on the profit that you made from selling certain types of assets.

Capital gain tax is applicable to any asset that rises in value over time – shares, bonds, mutual funds, real estate property, commercial space, etc.

In the Union Budget 2018-19, a significant reform made in Capital Gains tax on shares. All these rules are has been affected from February 1st, 2018.

Read also: Direct Mutual Fund – Everything You Need To Know

Short term capital gain (STCG)

An investor if holds a stable asset for less than 36 months and sell it then it would be considered as a short term capital gain. However, now limit isn’t similar for stocks and bonds. Consequently, stocks, bonds or shares are faster-moving compared to real estate. Therefore, STCG occurs when you have owned a stock for a year or less before sale.

STCG rule is applicable only to shares and securities which are listed and also traded on the stock exchange. If you are trading unlisted, over-the-counter securities (OCT trade), off-exchange trading then the 36-month rule applies.

In India under section 111A of the Income Tax Act., tax rates for short-term capital gains are 15%. This section includes equity, shares, bonds, equity-oriented mutual-funds, and units of a business trust.

However, debt-oriented mutual funds and preference shares do not come under this section 111A. Therefore, the gains from these kinds of funds and shares added to the regular income and taxed according to normal individual income tax laws.

How to calculate short term capital gain tax?

 Let’s have an instance to understand how to calculate STCG for equity shares.

Mukul Roy bought equity shares of Rs. 2 lakhs in January 2018 He sold the shares after 9 months on October 2018 at Rs. 2.8 lakh.

So, let us calculate the short-term capital gains tax in this transaction in the following way. Assume that the brokerage rate is 0.5% in this case.

Capital Gain = Selling price – (Brokerage at 0.5% + Buying price) = 280000 – (1400+200000) = Rs. 78600

Therefore, Short-term capital gains tax = (Short-term capital gain x STCG Tax rate) / 100 = (78600 x 15) / 100 = Rs. 11790

Read also: Difference between Trading and Investing: Must know
image of stcg & ltcg

Long term capital gain (LTCG)

According to the Income Tax law, any stable asset that you hold before sale for more than 36 months or 3 years is considered as long-term capital gains.

However, in the case of stocks, bonds, and shares this tenure is more than 12 months instead of 36 months. Likewise, any unlisted securities or over-the-counter securities fall under LTCG only if you sold after 36 months.

Most importantly, due to the extended holding time inflation is a critical determinant while computing LTCG. Therefore, it depends on the current Cost Index Inflation (CII).

So, LTCG formulated as below.

Indexed Cost of Acquisition = (Actual buying price) * (CII of year of sale)/ (CII of Year of buying).

Therefore, Capital Gain = (Sale Price – Indexed Cost of Acquisition).

Long Term Capital Gains Tax = 20% of Capital Gain

Note: On the other hand, if the transfer/selling price of the capital asset is less than the buying price, then it will be termed as – loss under the head capital gains. So, depending on your asset holding period, it would be the long-term capital loss (LTCL) or short-term capital loss (STCL).

What is the cost inflation index (CII)

Cost Inflation Index (CII) is fixed and is declared every year by the government. CII is used to calculate year-by-year the estimated increase in the valuation of assets and goods due to inflation.

What is indexation?

Indexation is a process in which the price of an asset adjusted with the rise of inflation. So, it is very significant because the value of asset or goods never remain flat and varies with time. Assuredly, the computation of capital gain based on the original price is not the actual measure of profit. So, indexation takes into account inflation and provides the most reasonable figure for long-term capital gains.

Tax on long term capital gain

In India long term capital gains fall under Section 10(38) of the IT Act. LTCG was not taxable for all the gains made on or before 31st January 2018. But, LTCG taxation reforms after the Union Budget 2018-19.

Therefore, earlier exempted LTCG tax on equity shares, equity-oriented mutual-funds are subjected to tax without indexing if the amount of gain exceeds Rs.1 lakh.

Consequently, as per government rule, 10% tax is imposed at present on such long term capital gains. So, this implies that all the capital gains that more than Rs.1 lakh will be charged at 10% tax rate without any inflation indexation benefit. Further, this tax will be applicable shares sold after 1st April 2018.

Now, in the case of debt-oriented mutual funds, preference shares are subject to general LTCG tax rules. So, here you have to pay 20% tax for no-equity assets after inflation indexation and 10% tax without indexation.

The indexation rule increases buying price. Therefore, the capital gain decreases. So, you can apply the indexation formula to the buying price and calculate its 20% tax. Otherwise, you can calculate the 10% tax without indexation. After that, you have to select the tax slab that is the lower of the two.

Period of holding for capital assets (as on FY 2018-19)

Asset Period of Holding
Short Term Long Term
Immovable Property (house, land) Less than 2 year More than 2 year
Movable Property (gold/jewelry) Less than 3 year More than 3 year
Equity Shares (Listed ) Less than 1 year More than 1 year
Equity Shares (Unlisted ) Less than 3 year More than 3 year
Equity Oriented Mutual Funds Less than 1 year More than 1 year
Debt Oriented Mutual Funds Less than 3 year More than 3 year
Bonds Less than 3 year More than 3 year

Short term capital gain vs. long term capital gain:

So, here are the basic differences between short term and long term capital gains.

Parameters Short-term Capital Gain Long-term Capital Gain
Related to Short term capital assets Long term capital assets
Time Duration of asset holding Less than 12 months for listed shares and 36 months for regular assets More than 12 months for listed shares and 36 months for regular assets and
Rate of taxation 15% (As per FY. 20018-19) 20% (this tax rate is subject to change as per the application)

Bottom line:

In conclusion, the capital gain is one of the crucial factors in income tax computation according to the income tax act. Now, the most crucial thing about capital gain is to understand the difference in duration of asset holding.

Short term capital gains and long term capital gains both are chargeable to tax as per IT act.  Inflation rate also takes part in long term capital gain calculation.

Therefore, we need to have sufficient knowledge of capital gain, STCG, and LTCG before start investing in any kind of financial instrument.

Hopefully, this article is helpful. Please send your valuable feedback.

Love only grows by sharing

Read the disclaimer.

74 Comments

  • Gabriele says:

    Your site has exceptional web content. I bookmarked the site

  • Niamh says:

    Do you have any kind of ideas for writing write-ups?
    That’s where I always struggle and I simply wind up gazing empty screen for long time.

    • Hello Niamh, this is a very common thing for a new blogger. Because you may have many ideas but don’t know where to start or you are not getting a proper idea that how to start. In each case first, jot down all the points you have in mind then start with one and continue with a related one. Also, you can break your ideas into categories and start one article from each category. By the time, you will make a large number of article list and make sure to write an article with a logical time interval like one article per week or per month.

      Happy writing. Let me know your blog link and do subscribe onlinefarrago.

  • Johne900 says:

    Hey, very nice site!! Man .. Beautiful .. Amazing .. I will bookmark your blog and take the feeds alsoI am happy to find a lot of useful info here in the post, we need work out more techniques in this regard, thanks for sharing.

    • onlinefarrago says:

      Thanks for your kind words. Please keep visiting and do not hesitate to share your views with me.
      Readers suggestions are very precious. It always motivates me for further writing.

  • Johna977 says:

    I like this weblog so considerably, saved to my bookmarks.

  • Johnb928 says:

    I like the valuable info you provide in your articles. I will bookmark your blog and check again here regularly. I am quite certain I’ll learn a lot of new stuff right here! Best of luck for the next!

  • Johnd397 says:

    Merely a smiling visitor here to share the adore, btw outstanding style. Audacity, more audacity and always audacity. by Georges Jacques Danton.

  • Smithc88 says:

    Hey, very nice website!! Man .. Beautiful .. Amazing .. I’ll bookmark your website and take the feeds also I’m happy to find numerous useful information here in the post, we need work out more techniques in this regard, thanks for sharing.

  • Johnc755 says:

    Thanks for the post.Really looking forward to reading more.

    • onlinefarrago says:

      Thank you very much for your kind words.
      Please keep visiting and subscribe to my blog.

  • Smitha664 says:

    Ive learn some excellent stuff here. Certainly worth bookmarking for revisiting. I wonder how a lot attempt you set to create such a fantastic informative web site.

    • onlinefarrago says:

      Thank you very much for your kind words.
      Please keep visiting and subscribe to my blog.

  • Johng433 says:

    Hi! This is my first visit to your blog!

  • Johna672 says:

    I have not checked in here for a while since I thought it was getting boring, but the last few posts are good quality so I guess I’ll add you back to my daily blog list. You deserve it my friend.

  • firtuklo imutrzas says:

    Wow! Thank you! I permanently wanted to write on my blog something like that. Can I take a part of your post to my site?

    • onlinefarrago says:

      All the content in this website is copyright protected. So, if you want to use any part of any of my article, then you must mention the credit to onlinefarrago.com at there.

  • Smithg815 says:

    Woah! I’m really loving the template theme of this website. It’s simple, yet effective. A lot of times it’s hard to get that perfect balance between usability and visual appeal. I must say you have done a great job with this. In addition, the blog loads super quick for me on Firefox. Excellent Blog!

  • article says:

    I just want to mention I am just beginner to blogging and certainly liked you’re page. Most likely I’m want to bookmark your blog . You surely come with exceptional writings. Appreciate it for revealing your webpage.

    • onlinefarrago says:

      Thank you so much for the positive feedback. 🙂
      It’s always good to know that people are out there, enjoying my work and finding it useful.
      Please keep visiting and subscribe to the blog.

  • 릴게임바다이야기 says:

    Hi there! I know this is kinda off topic nevertheless I’d figured I’d ask. Would you be interested in exchanging links or maybe guest authoring a blog article or vice-versa? My site addresses a lot of the same topics as yours and I believe we could greatly benefit from each other. If you might be interested feel free to shoot me an email. I look forward to hearing from you! Great blog by the way!

    • onlinefarrago says:

      Thanks a lot. Please feel free to mail me and share your website link.
      Please do subscribe and visit regularly.

  • W88 says:

    Wonderful beat ! I would like to apprentice while you amend your site, how could i subscribe for a blog website? The account helped me a acceptable deal. I had been a little bit acquainted of this your broadcast provided bright clear idea

    • onlinefarrago says:

      Wow… thanks a ton for this wonderful comment.
      We have an automatic pop up for the subscription. Also, right-hand side in the blog page or post page we have subscription section named Stick to Online Farrago.
      Please keep visiting and do subscribe.

  • http://bumprompak.by/user/fvyxwkjnrsk/ says:

    Excellent goods from you, man. I have understand your stuff previous to and you’re just too great. I actually like what you’ve acquired here, really like what you are saying and the way in which you say it. You make it enjoyable and you still care for to keep it sensible. I cant wait to read far more from you. This is really a tremendous site.

  • air con cleaning says:

    Very interesting subject, appreciate it for putting up.

  • Hi I am so delighted I found your website, I really found you by accident, while I was browsing on Bing for something else, Nonetheless I am here now and would just like to say cheers for a incredible post and a all round exciting blog (I also love the theme/design), I don’t have time to read through it all at the minute but I have bookmarked it and also added your RSS feeds, so when I have time I will be back to read much more, Please do keep up the superb work.

  • electro says:

    You made some decent points there. I seemed on the web for the difficulty and found most people will go along with with your website.

    • onlinefarrago says:

      Thanks a lot for the positive feedback. 🙂
      Please do subscribe and visit regularly.

  • sishair says:

    Enjoyed looking at this, very good stuff, regards . “I will do my best. That is all I can do. I ask for your help-and God’s.” by Lyndon B. Johnson.

  • geek squad tech support says:

    Aw, this was a very nice post. In thought I want to put in writing like this moreover – taking time and actual effort to make an excellent article… but what can I say… I procrastinate alot and certainly not seem to get one thing done.

  • marcel van hooijdonk says:

    Excellent post. I was checking constantly this weblog and I am inspired! Extremely useful info particularly the remaining phase 🙂 I care for such info a lot. I was seeking this particular information for a long time. Thanks and best of luck.

  • Point and shoot cameras says:

    Needed to draft you a little bit of observation to be able to thank you very much over again on the pretty techniques you have shown above. It was really strangely generous with you to convey openly what exactly many individuals would have advertised as an electronic book to earn some profit for themselves, even more so since you might well have tried it if you wanted. The secrets likewise acted to be a fantastic way to know that someone else have similar dream just as my very own to understand way more with regards to this issue. I know there are lots of more enjoyable instances ahead for folks who see your blog.

  • mobile hacks says:

    Keep functioning ,impressive job!

  • Schädlingsbekämpfung says:

    You have mentioned very interesting points! ps decent web site.

  • muscle and joint pain relief rub says:

    It is best to participate in a contest for top-of-the-line blogs on the web. I’ll advocate this site!

  • round the world ticket says:

    Wow, amazing blog layout! How long have you ever been running a blog for? you made running a blog look easy. The overall glance of your website is wonderful, let alone the content material!

  • giving mobile app says:

    My brother suggested I may like this website. He was totally right. This publish actually made my day. You cann’t believe simply how so much time I had spent for this information! Thanks!

  • bartenders says:

    Thank you for another magnificent post. Where else could anyone get that kind of information in such an ideal way of writing? I have a presentation next week, and I am on the look for such info.

  • push ads android says:

    I’m really enjoying the design and layout of your blog. It’s a very easy on the eyes which makes it much more enjoyable for me to come here and visit more often. Did you hire out a designer to create your theme? Superb work!

  • suit says:

    I truly appreciate this post. I’ve been looking everywhere for this! Thank goodness I found it on Bing. You have made my day! Thanks again!

  • Jason Kulpa says:

    You could definitely see your skills in the work you write. The sector hopes for even more passionate writers like you who are not afraid to say how they believe. At all times follow your heart.

  • curso says:

    Definitely, what a fantastic site and instructive posts, I surely will bookmark your blog.All the Best!

  • best successful business says:

    I have recently started a web site, the information you provide on this web site has helped me tremendously. Thanks for all of your time & work.

  • online says:

    We’re a group of volunteers and opening a new scheme in our community. Your website offered us with valuable info to work on. You’ve done an impressive job and our whole community will be thankful to you.

  • Hey! Someone in my Facebook group shared this website with us so I came to check it out. I’m definitely enjoying the information. I’m book-marking and will be tweeting this to my followers! Fantastic blog and fantastic design and style.

  • poker online says:

    Wonderful website. Plenty of useful information here. I am sending it to a few friends ans also sharing in delicious. And obviously, thanks for your sweat!

  • 릴게임바다이야기 says:

    Good day! This post couldn’t be written any better! Reading this post reminds me of my old room mate! He always kept chatting about this. I will forward this post to him. Pretty sure he will have a good read. Thank you for sharing!

  • מצלמות אבטחה לעסק says:

    Howdy would you mind stating which blog platform you’re working with? I’m looking to start my own blog soon but I’m having a tough time selecting between BlogEngine/Wordpress/B2evolution and Drupal. The reason I ask is because your layout seems different then most blogs and I’m looking for something unique. P.S Apologies for being off-topic but I had to ask!

  • arlington dental says:

    Hi there, I found your site via Google while looking for a related topic, your web site came up, it looks great. I have bookmarked it in my google bookmarks.

  • fogyókúra says:

    Hi my loved one! I want to say that this article is amazing, great written and come with approximately all vital infos. I would like to see extra posts like this .

  • Marketing Plan says:

    Hello there, just became alert to your blog through Google, and found that it is truly informative. I am gonna watch out for brussels. I will appreciate if you continue this in future. Many people will be benefited from your writing. Cheers!

  • bouncy ball vending machine says:

    It’s really a great and useful piece of information. I’m glad that you shared this helpful information with us. Please keep us informed like this. Thanks for sharing.

  • Google says:

    Awesome write-up. I am a regular visitor of your web site and appreciate you taking the time to maintain the excellent site. I will be a frequent visitor for a long time.

  • Linkedin Oliver Isaacs says:

    Hello There. I found your blog using msn. This is a really well written article. I will be sure to bookmark it and return to read more of your useful info. Thanks for the post. I’ll certainly return.

  • otakjualan says:

    Hello there. I discovered your website by means of Google whilst searching for a comparable topic, your site came up. It seems great. I have bookmarked it in my google bookmarks to visit then.

  • sukagitu.com says:

    Hi there. I discovered your web site via Google even as searching for a similar topic, your web site came up. It appears great. I’ve bookmarked it in my google bookmarks to visit then.

  • situs dominoqq online says:

    Awesome post. I’m a normal visitor of your blog and appreciate you taking the time to maintain the excellent site. I’ll be a regular visitor for a really long time.

  • Baca Mania says:

    Hi there. I discovered your website via Google while searching for a comparable topic, your site got here up. It seems to be great. I’ve bookmarked it in my google bookmarks to visit then.

  • Mp3 Juice says:

    Thanks for sharing superb informations. Your web-site is very cool. I am impressed by the details that you’ve on this website. It reveals how nicely you perceive this subject. Bookmarked this website page, will come back for extra articles. You, my pal, ROCK! I found simply the info I already searched all over the place and just could not come across. What a great website.

  • slot bonus member baru says:

    Hello there. I discovered your website by the use of Google at the same time as searching for a comparable subject, your web site got here up. It seems great. I’ve bookmarked it in my google bookmarks to come back then.

  • link sbobet says:

    Hiya, I’m really glad I have found this information. Nowadays bloggers publish just about gossip and net stuff and this is really irritating. A good site with interesting content, this is what I need. Thanks for making this website, and I will be visiting again. Do you do newsletters by email?

  • bonus member baru 100% says:

    Awesome post. I’m a regular visitor of your web site and appreciate you taking the time to maintain the excellent site. I’ll be a frequent visitor for a really long time.