Income Tax on Short Term Capital Gain with examples

Capital gain tax includes short-term capital gains and long-term capital gains. Larger assets can be properties or securities. There is a tax exemption in the short term. The creation of assets is hard work in itself, involving time and effort but the results are often worth the effort and sweat. As citizens of India, we have to pay taxes on our wealth, which includes property, and Capital Gain refers to the profit that a person earns when transferring capital goods. Capital Profit is also classified as short-term capital gains and long-term capital gains, and the tax on them is called the Capital Gains Tax. This article will discuss the income tax on Short Term Capital Gain.

What is the Capital Gains?

The profits or gains from the sale of capital assets are classified as capital gains. The most common examples of capital assets are land, building, housing, gold, trademarks, equity shares, patents, lease rights, machinery, etc. they are referred to as short-term capital gains.
Example: X bought the building for Rs 10 lakh and sold it the following year for Rs 15 lakh, a profit of Rs 5 lakh. In this case, his short-term profit is Rs 5 lakh.

How is Short Term Capital Gain (STCG) tax calculated?

After considering the total value of the asset, subtract the costs incurred in connection with the transfer. Also, deduct the cost of acquisition and development costs. The remaining amount is a short-term cash benefit, which is taxable under the STCG.

How is short-term holding duration defined?

Short-term holdings vary in a variety of ways. For securities such as stock exchanges, loans, joint ventures, and government securities, the holding period can be up to 12 months. For some immovable property, such as land, or property, the time is up to 24 months.

Income Tax on Short Term Capital Gain

In the example above X will have to pay tax on her profits, i.e. Rs 5 lakh. Any costs incurred in developing the property or paying for the asset may be deducted before calculating the short-term capital gains and interest. In the example above if X pays a broker Rs 50,000, her total profit will be Rs 4.5 lakh, and tax will be calculated on this.

Short-term Capital Gain on securities

Equity profits listed in India’s well-known stock markets and Equity units prone to Mutual Funds and business trusts attract short-term capital gain under section 111A. Such units transferred after 1 October 2004 is liable for the securities tax, provided that they are transferred through a known stock exchange.

Short-term Capital Gain Tax Exemption under Section 111A

There are certain exemptions for securities not under section 111A, some of which are listed below:

• Short-term capital gains on equity shares trading in anonymous shares.
• Short-term capital gain due to the sale of any shares other than equity shares.
• Short-term capital gains on the sale of non-equity MFs.
• Short-term capital gains from the sale of bonds, government securities, and loans.
• Short-term gain from the sale of immovable property, silver, gold, etc.

Short-term capital gain of Property

All property transactions attract short-term capital gains, provided that the transfer of property takes place within 3 years of ownership/purchase. Selling real estate is also bound to attract large and short-term profits and a person is inclined to pay taxes on it. This tax, however, may include rebate agreements that cover any additional costs incurred in repairing or upgrading the property.

Tax Rate:
Taxes that apply to short-term benefits are fixed by the government and fall under section 111A of the Income Tax Act. The current rate stands at 15%, minus additional charge and cess, usually additional. Short-term capital gains that do not fall under section 111A fall below the major short-term gains and are taxable based on the income of a particular individual.

Exemption on Short-term capital gain 

Persons wishing to apply for exemption/deduction for short-term gain may do so under Section 80C to 80U of Income Tax, provided that short-term capital benefits do not fall below section 111A. In cases where the benefits fall below the Section 111A ambit, individuals may not opt ​​for a deduction under Section 80C to 80U.

Example:

Anuj bought a plot of land in Bangalore for Rs 15,00,000 in December 2012. He sold it to us in October 2013 for Rs 25,00,000. We have invested Rs 1,50,000 in PPF and another Rs 50,000 in NSC. What are the total taxable income of Anuj and his short-term capital gain tax?
The property does not fall under section 111A of the Income Tax Act and so Anuj may require a deduction under Section 80C to 80U. He may require a total deduction of Rs 2, 00,000 (PPF + NSC). The statistics are now as follows:

Short-term profits on real estate – Rs 20,00,000 – Rs 15,00,000 = Rs 5,00,000/ –

This is his total income.

Fees withheld under Section 80C to 80U – Rs 2,00,000 / –

Tax Amount = Rs 5,00,000 – Rs 2,00,000 = Rs 3,00,000 / –

He is now inclined to pay a 15% short-term interest rate tax on this money (withdraw cess).

This means he has to pay Rs 45,000 as short-term capital gain tax.

Final words

Before buying or selling any short-term capital assets, you should be aware of the STCG tax rate in which they operate. Hope you got an insight into the income tax on Short Term Capital Gain.