Short term capital gain tax - Tax and Finance Guide

Before learning short term capital gain tax first we have to learn short term capital asset.

What is Short Term capital Asset ??

As per section section 2(42A) short term capital asset is a capital asset held by an assesses (Individual ,HUF, Company and Firm) for less than 36/12/24 months immediately preceding the date of it transfer/sale.

Examples of short term capital asset :

A) Assets which is held for 12 months or less:

Listed equity/preference shares of a company held upto 12 months is short term capital assets. For instance 100 Reliance shares purchases on 01.04.2022 and sold on 31.03.2023 .
Securities other than listed in recognised stock exchange in India (Like Debentures and Govt Securities)
Zero coupon bonds
Units of equity oriented fund specified u/s 10(23D)

B) Assets which is held for 24 months or less:

Unlisted shares,Immovable properties held for up to 24 months is treated as short term capital assets.

Note: Immovable properties means house ,land and building.

C) Assets which is held for 36 months or less:

Other Assets held for 36 months. Other assess includes Gold and Jewelries.

What is short term capital gain?

As per the provisions of section 2(42B) short term capital gain means capital gain arising on transfer of short term capital assets. In addition, when short term capital assets is sold out within 12/24/36 months and earns profit on such sale then it is called as short term capital gain.

Note: Transfer means transfer of ownership from one person to another person for a price paid or promised to be paid by mutual agreement or legal force.

How tax is Levied on short term capital gain

Short term capital gain tax is classified into two categories:

Short term capital gain tax covered under section 111A
Short term capital gain taxed as per the slab rate applicable to the assessees (i.e. not covered under section 111A )

Now,let us elaborate short term capital gain tax covered under section 111A

section 111A of income tax is applicable when short term capital gain arising on transfer of equity shares through recognised stock exchange and where such transaction is liable for securities transaction tax .

Further ,tax rate applicable u/s 111A is 15% + surcharge (if applicable) + education cess

Instances of short term capital gain are covered under section 111A

Listed security
Units of equity oriented mutual fund
units of business trust
Short term capital gain on sale of equity shares, units of business trust, units of equity oriented mutual funds through recognised stock exchange located in International financial services centre (IFSC) where consideration is paid in foreign currency , even if STT is not liable.

Short term capital gain taxed as per slab rate

Short term capital assets which is taxed as per income tax slab rates are those which is not covered under section 111A.

Further , they will taxed as per the income tax slab rate applicable to them.

Instances of short term capital gain which is taxed as per slab rate

Non equity mutual funds
Gold funds
Immovable properties (House/land)
Lastly, Movable properties (Gold/Jewelries)

Deductions under section 80C to 80U

No deduction from short term capital gain under section 80C to 80U

Income tax does not allow deductions under section 80C to 80U from the short term capital gain referred under section 111A.

In addition to, where short term capital gain taxed at slab rate than above deductions is allowed.

How to calculate short term capital gain tax

Particulars	Amount
Full value of sale consideration	XXX
Less:
* Cost of purchase	(XXX)
* Cost of improvement	(XXX)
* Cost of sale/transfer	(XXX)
Short term capital gain	XXX

Example on short term capital gain tax

A) Miss Aruna purchased land for Rs. 12,00,000 on 01.05.2022 and sold it in September 23 for Rs. 16,00,000. A sum of Rs.30, 000 is invested by her in PPF and paid Lic premium Rs. 12,000.Compute short term capital gain and taxable income of Miss Aruna.

Note: Miss Aruna held land for less than 24 months ( i.e. for 19 months) it means she earns short term capital gain. Further , Immovable property (i.e. land and building) does not fall under section 111A of income tax , therefore she is eligible for deduction under section 80C and taxed at slab rate applicable to her.

Full Value of consideration 16,00,000

Less: Cost of land (12,00,000)

Short term capital gain 4,00,000

Less: Deduction under chp via

=> PPF Investment (30,000)

=> Lic Premium (12,000)

Taxable Income 3,58,000

B)Let us assume Mr. Kumar is an 40 years old indian, is a salaried individual working at XYZ Ltd and has an annual salary of 5,00,000 .On january 2022 he invested Rs. 2,00,000 for 2000 shares publicly traded firm (Brokerage charge is Rs. 10,000) .

And decided to sell them off in November 2022 for Rs. 4,00,000 (These were sold through bombay stock exchange and STT charges were levied on them). Calculate short term capital gain and final tax liability of Mr. Kumar.

=>Mr. Kumar held shares for the period less than 12 months (i.e. 11 months).

Computation of tax liability of Mr. Kumar

Particulars	Amount(Rs.)
Salary of Mr. Kumar (5,50,000-50,000)	5,00,000
Short term capital gain	1,90,000
Gross total income	6,90,000
Less: deduction under chapter via	Nil
Mr. Kumar total taxable income	6,90,000
Tax liability on income (2,50,0005%+1,90,00015%) (Mr. kumar salary is taxed at 5% as per new tax regime of income tax act and short term capital gain is taxed at 15%)	41,000
Add: Education Cess 4% (41,000*4%)	1,640
Mr. Kumar total tax liability	42,640

Calculation of short term capital gain

Particulars	Amount(Rs)
Full value consideration	4,00,000
Less: Expenses incurred on transfer of asset	(10,000)
Net sale value	3,90,000
Less: cost of acquisition	2,00,000
Less: Cost of Improvement	Nil
Short term capital gain	1,90,000

Yo can refer link for calculation of salary income- https://taxandfinanceguide.com/calculation-of-income-from-salary-new-tax-regime/and Comparison of New and old tax regime-https://taxandfinanceguide.com/comparison-of-slab-rate-old-innew-tax-regime-f-y-2022-23/