It’s tax season yet again! And if you’re a business owner in India, you would know that there are a plethora of taxes that you need to pay. One of them is STCG tax. STCG or short-term capital gains tax is levied on the profits made from the sale of equity shares or units of equity-oriented mutual funds that are held for less than 12 months. In this blog post, we will explore everything you need to know about STCG tax in India. We will talk about who needs to pay it, what the rates are, and how it is calculated. So if you’re looking for some clarity on the topic, read on!
What is STCG Tax?
STCG Tax is the short-term capital gains tax that is levied on the sale of shares or securities that are held for less than 12 months. The tax rate for STCG is 15% for most people. However, if you are a resident of India and your total income including STCG is less than Rs 1 lakh, then you will not have to pay any taxes on your STCG. For those who have a total income of more than Rs 1 lakh, the tax rate on STCG will be 10%.
How is STCG Tax Calculated in India?
STCG or Short Term Capital Gains Tax is levied on the profits earned from the sale of shares or equity-oriented mutual funds held for less than 12 months. The tax rate for STCG is 15% flat, irrespective of the income slab you belong to.
To calculate your STCG, simply subtract the cost of acquisition (which includes brokerage, charges, and commission) from the selling price. The resulting figure is your capital gain and will be taxed at 15%. Remember, STCG is calculated on a per transaction basis. So, if you have sold multiple units of shares/mutual funds in a single day, each transaction will be considered separately for tax purposes.
What are the Exemptions from STCG Tax in India?
1. Short-term capital gains on equity shares and equity mutual funds held for less than 12 months are exempt from tax.
2. Capital gains on debt mutual funds held for more than 36 months are exempt from tax.
3. Capital gains arising from the transfer of certain specified assets, such as bonds, debentures, government securities, and units of UTI and approved superannuation funds, are exempt from tax.
4. Capital gains arising from the sale of agricultural land are exempt from tax.
5. Capital gains arising from the sale of a residential house are exempt from tax if the proceeds are invested in another residential house within a period of two years from the date of sale.
What are the Implications of STCG Tax in India?
STCG, or short-term capital gains, tax is a tax levied on the profits from the sale of assets held for less than 36 months. In India, STCG is taxed at 15%, which is higher than the long-term capital gains tax of 10%. This means that investors need to be mindful of the implications of STCG before selling any assets.
First and foremost, STCG can eat into your profits. If you’re selling an asset for a profit of Rs. 1 lakh, for example, you’ll only take home Rs. 85,000 after taxes. This could make a big difference if you’re relying on that money to meet financial goals.
Another implication of STCG is that it can make it harder to time the market. If you wait too long to sell an asset, you may end up paying more in taxes than if you had sold it sooner. This is because the longer you hold an asset, the lower your tax rate will be (10% for long-term capital gains instead of 15% for STCG).
Finally, STCG can also complicate your taxes if you have other forms of income. For instance, if you have a job and also earn income from investments, you’ll need to calculate your taxes separately for each source of income. This can be challenging and time-consuming.
How to Save Taxes on STCG Gains in India?
If you are an Indian resident, you are required to pay taxes on your short-term capital gains (STCG). However, there are a few ways that you can reduce the amount of taxes that you owe.
One way to reduce your STCG tax liability is to invest in equity-linked saving schemes (ELSS). These schemes are offered by mutual fund companies and allow you to invest in stocks while getting the benefit of a deduction on your taxes. The maximum deduction that you can avail under this scheme is Rs. 1.5 lakhs per year.
Another way to reduce your STCG tax liability is to invest in certain government-approved bonds. These bonds offer a fixed rate of interest and have a maturity period of 3 years or more. The interest earned on these bonds is tax-free.
If you are a frequent trader, then you can also take advantage of the Securities Transaction Tax (STT) paid on all trades. This tax is deducted at source by the broker and can be used to offset your capital gains tax liability.
Lastly, if you are able to show that the sale of shares was for the purpose of meeting expenses relating to medical treatment, higher education or housing, then you may be eligible for certain exemptions from paying taxes on your STCG.
The STCG tax rate in India is a complex topic, but we hope that this article has helped to clear up some of the confusion around it. As always, it’s important to speak to a financial advisor if you have any questions about your taxes and how they might be affected by changes in the law.