The complete guide about Short Term Capital Gains Tax is as follows. Read the complete article to know about Short Term Capital Gain Tax Rate, Computation of Short Term Capital Gains tax, Exclusions, etc.
Income from Capital Gain
Under the head ‘Income from Capital Gains’ any Income derived from a Capital asset that is movable or immovable is chargeable to tax. In short, Profits or gains arising from the transfer of a capital asset are called “Capital Gains”. These profits/gains are charged to tax under the head “Income from Capital Gains”.
Section 2 (14): (There must be a Capital Asset)
- Capital Asset is defined as a property of any kind held by the assessee, whether it is connected with his business / profession or not.
- The property may be tangible or intangible.
- The property may be fixed (immovable) or movable or circulating.
Examples: Land, Vehicles, Buildings, leasehold rights, good will, tenancy rights, patents, trademarks, licenses, etc.
Capital Asset Exclusions
1. Any stock-in-trade, consumable stores or raw materials held for the purposes of his business / profession.
2. Personal effects, that is, movable property held for personal use by the assessee or any member of his family dependent on him but excludes
- archaeological collections.
- sculptures or any work of art.
(i) ornaments made of gold, platinum, silver, or any other metal that is precious or any alloy (a mixture of two or more metals) containing one or more of such precious metals, whether containing any precious or semi-precious stones or not containing, and whether or not worked or sewn into any wearing apparel.
(ii) precious or semi-precious stones, whether set or not set in any utensil, furniture, or other article or worked or sewn into any wearing apparel.
3. Agricultural Land in India, not being a land situated within
(i) a jurisdiction of a municipality, town area committee, notified area committee, cantonment board and which has a population of not less than 10,000;
(ii) Range of the following distance measured aerially from the local limits of any cantonment board or municipality
- not being more than 2 Kilo Metres, if population of such area is >10,000 but < 1 lakh i.e., more than 10,000 but not exceeding 1 lakh;
- not being more than 6 Kilo Metres, if the population of such area is >1 Lakh but < 10 Lakh i.e., more than 1 lakh but not exceeding 10 lakhs; or
- not being more than 8 Kilo Metres, if the population of such area > 10,00,000 i.e., more than 10 lakhs. The population is to be considered according to the figure of last preceding (before) census of which relevant figures have been published before the 1st day of the year.
- 61/2 % Gold Bonds, 1977 or 7 % Gold Bonds, 1980 or National Defence Gold Bonds, 1980 issued by the Central Govt;
- Special Bearer Bonds, 1991.
- Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999.
Types of Capital Assets
There are two types of Capital Assets, they are
- Short-term Capital Asset.
- Long-term Capital Asset.
Short Term Capital Gain Tax
1. Short-term Capital Asset: If an asset is held by the assessee for not more than 36 months immediately preceding its date of transfer, then it is considered as Short-term Capital Asset. Some assets are considered as short-term capital assets even it is held for 12 months.
- Equity or preference shares held in a company.
- Zero coupon bonds.
- Any other security listed on a recognized stock exchange in India.
- Units of specific Mutual Funds.
Mr. Mahesh is a salaried employee. In the month of April 2013, he purchased gold and sold the same in December 2014. In this case, gold is the capital asset for Mr. Mahesh. He purchased gold in April 2013 and sold it in December 2014, i.e., after holding it for a period less than 36 months. Hence, gold will be treated as Short Term Capital Asset.
Mr. Mahesh is a salaried employee. In the month of April 2014, he purchased equity shares of SBI Limited (listed in BSE) and sold the same in January 2015. In this case, shares are capital assets for Mr. Mahesh. He purchased shares in April 2014 and sold them in January 2015, i.e., after holding them for a period less than 12 months. Hence, shares will be treated as Short Term Capital Assets.
Types of Capital Gains
There are two types of Capital Gains, they are
- Short-term Capital Gain (STCG).
- Long-term Capital Gain (LTCG).
1. Short Term Capital Gains: It arises on the transfer of Short-term Capital Asset.
Computation of Short Term Capital Gains Tax
|Full Value of Consideration|
|Less||1. Cost of acquisition|
|2. Cost of improvement|
|3. Expenditure incurred in such a transfer|
|4. Exemptions available, if any|
|Taxable Short-term Capital Gain|
Full Value Consideration
Full Value Consideration is the amount for which the sale/transfer of the asset is made. It may be in cash or in kind or combination of both i.e. in exchange for an asset.
Cost of Acquisition
The Cost of Acquisition is the amount which assessee has incurred or the price which assessee has paid for acquiring the asset/property.
Cost of Improvement
The Cost of Improvement is a capital expenditure or cost incurred by an assessee in making any improvements / addition to the capital asset.