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According to the Income Tax Department of India, any profits or gains arising from transfer or sale of a capital asset is called Capital Gains.
Such profits from capital assets are subject to a tax and will be put under the heading “Capital Gains” when you file your IT return.
Based on the holding period of the capital assets, capital gains tax are of 2 types. “Short Term Capital Gains” and “Long Term Capital Gains”.
But in this video, we will be understanding all the aspects relating to Short term capital gains.
Any capital asset which is held for a period of less than 3 years is treated as a short-term capital asset.
However, there are certain exceptions in case of assets like – Shares listed in a stock exchange in India, Equity Mutual Funds, and listed securities like Debentures and Government Securities.
These instruments are considered as short term capital assets if they have a holding period less than 12 months.
So if you are a trader in the stock markets and take delivery of shares in your Demat account but sell those in less than 12 months, then you are subject to a Short Term Capital Gains tax.
The current rate of STCG tax is 15% plus surcharge and cess. Let’s understand the calculation of STCG.
STCG = Sale Price minus Expenses( such as brokerage) minus Purchase Price
A 15% tax will then be paid on the value left.
Assume Mr. Kumar purchased 10,000 shares of Tata Motors at Rs.100 per share in December, 2019. In April 2020, he sold all the shares at Rs.125 per share.
Since the holding period was less than 12 months, his shares will be treated as short term capital assets.
In this case his tax will be 15% of Rs.2,50,000. Which comes to a total STCG tax of Rs.37,500.
In case you have made a loss from your transactions, you can offset those losses from any gains you have made in the same year.
So suppose you make a Profit of Rs.2,50,000 from Tata Motors but make a loss of Rs. 1Lakh from Reliance shares. Then you will pay STCG tax only on the total gain of Rs.1,50,000.
In case your losses are higher than your profits, then you will not have to pay any tax in that year. You can also carry forward your losses to offset any future gains for upto 8 years.
All STCG calculations for Equity Mutual Funds will be done in the same way. But in case of other mutual funds and asset classes the tenure of the holding will become less than 36 months.
Another important thing to remember is that intraday and Futures and Options trades are not subject to capital gains. This is because STCG is only applicable if you take delivery of the shares in your demat.
Intraday and FnO gains are speculative income and will be taxed as per your income tax slab.
There are not many ways for investors to avoid STCG. The only way to avoid this is by either investing in tax saving schemes or opt for longer term investments.
Thank you for watching!
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