{"id":34848,"date":"2024-03-26T17:00:35","date_gmt":"2024-03-26T11:30:35","guid":{"rendered":"https:\/\/www.equentis.com\/blog\/?p=34848"},"modified":"2025-05-19T18:38:21","modified_gmt":"2025-05-19T13:08:21","slug":"short-term-and-long-term-capital-gains-save-upto-rs-15000-tax-on-your-equity-holdings","status":"publish","type":"post","link":"https:\/\/www.equentis.com\/blog\/short-term-and-long-term-capital-gains-save-upto-rs-15000-tax-on-your-equity-holdings\/","title":{"rendered":"Short-Term And Long-Term Capital Gains: Save Upto Rs 15,000 Tax On Your Equity Holdings"},"content":{"rendered":"
<\/div>\n

Investing can be a powerful tool for building wealth, but it\u2019s essential to understand the tax implications of your investment returns. In India, profits from the sale of assets are classified as either short-term or long-term capital gains<\/a>, each with its tax rates<\/a> and rules. Let\u2019s dive into these terms and how they can affect your investment strategy.<\/p>\n\n\n\n

What Are Capital Gains?<\/h2>\n\n\n\n

Capital gains are profits from selling a capital asset, such as property, stocks, or bonds. When you sell an asset for more than you paid, the profit is considered a capital gain subject to taxation<\/a>.<\/p>\n\n\n\n

Short-term Capital Gains (STCG)<\/h2>\n\n\n\n

If you sell an asset within 36 months (or 24 months for certain assets like unlisted equity shares) of purchasing it, any profit you make is classified as a short-term capital gain. These gains are taxed at the same rate as your regular income, which varies depending on your income tax<\/a> bracket. Meanwhile, the tax on capital gains on equity and equity-based funds is 15%. For example, if you\u2019ve invested Rs 50 thousand in equity and it grows to Rs 80 thousand in 6 months, this is how much tax you are supposed to be paying:<\/p>\n\n\n\n

Equity Price<\/td>50,000<\/td><\/tr>
Equity Price After Capital Gain<\/td>80,000<\/td><\/tr>
Capital Gain<\/td>30,000<\/td><\/tr>
Applicable tax<\/td>30,000 x 15%<\/td><\/tr>
<\/td>4500<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

So, with your capital gain of Rs 30,000, you will be paying a tax of Rs 4,500.<\/p>\n\n\n\n

Also Read: Paid Up Capital Explained<\/a><\/p>\n\n\n\n

Long-term Capital Gains (LTCG)<\/h2>\n\n\n\n

On the other hand, if you hold onto an asset for longer than the periods mentioned above, the profit from its sale is classified as a long-term capital gain. Whereas the below-listed assets shall be considered long-term capital assets if held for over 12 months.<\/p>\n\n\n\n

    \n
  • Equity or preference shares in a company listed on a recognized stock exchange<\/a> in India<\/li>\n\n\n\n
  • Securities (like debentures, bonds, govt securities, etc.) are listed on a recognized stock exchange<\/a> in India.<\/li>\n\n\n\n
  • Units of UTI, whether quoted or not<\/li>\n\n\n\n
  • Units of equity-oriented mutual funds<\/a>, whether quoted or not<\/li>\n\n\n\n
  • Zero coupon bonds, whether quoted or not<\/li>\n<\/ul>\n\n\n\n

    The tax rate for LTCG is generally lower than that for STCG and can be 20% with indexation benefits, which adjusts the purchase price of an asset for inflation<\/a>. In the case of Equity or Equity funds<\/a>, the tax on capital gain is 10%  if the capital gain is over Rs 1 lakh. To understand it, let\u2019s take the example above, where you have bought equity of Rs 50 thousand, which grows to Rs 80 thousand in one year. So you have made a capital gain of Rs 30 thousand, which is under 1 lakh so that this income will be tax-free. But this would have been the tax calculation if your investment had grown to Rs 1.6 Lakhs.<\/p>\n\n\n\n

    Equity Price<\/td>50,000<\/td><\/tr>
    Equity Price After Capital Gain<\/td>1,60,000<\/td><\/tr>
    Capital Gain<\/td>1,10,000<\/td><\/tr>
    Applicable tax<\/td>(1,10,000 – 1,00,000) x 10%<\/td><\/tr>
    <\/td>1,000<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n
    Tax Type<\/strong><\/td>Condition<\/strong><\/td>Applicable Tax<\/strong><\/td><\/tr>
    Long-term capital gains<\/a> tax (LTCG) <\/td>Sale of:- Listed Equity shares (If Securities Transaction Tax -STT has been paid on the purchase and sale of such shares) – units of equity-oriented mutual fund (If STT has been paid on the sale of such units)<\/td>10% over and above Rs 1 lakh  <\/td><\/tr>
    Others<\/td>20%<\/td><\/tr>
    Short-term capital gains tax (STCG)<\/td>When Securities Transaction Tax (STT) is not applicable<\/td>Normal slab rates<\/td><\/tr>
    When STT is applicable<\/td>15%.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

    Why Does It Matter?<\/h2>\n\n\n\n

    Understanding the difference between STCG and LTCG is crucial for investors because it can significantly impact their net returns. By planning the duration for which you hold an asset, you can optimize your tax liability and maximize your returns. For example, all long-term capital gains up to Rs 1,00,000 are tax-free, but they would be taxable as short-term capital gains as you\u2019ll be paying 15% tax on the gain, and the payable tax will be Rs 15,000, making your effective income Rs 1,00,000 – 15,000 which is Rs 85,000<\/p>\n\n\n\n

    Capital Gain<\/td>1,00,000<\/td><\/tr>
    Applicable tax<\/td>1,00,000 x 15%<\/td><\/tr>
    <\/td>15,000<\/td><\/tr>
    Profit After Tax<\/td>1,00,000 – 15,000<\/td><\/tr>
    <\/td>85,000<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

    You can also use these criteria to help you reduce taxes on your long-term investments<\/a>. Here\u2019s an example: Let\u2019s say you have invested Rs 40 lakhs in a company for 10 years, and your investment grows by 20% every year. Then, this is what your taxes would look like.<\/p>\n\n\n\n

    Year<\/strong><\/td>Amount in portfolio<\/strong><\/td><\/tr>
    1<\/td>400000<\/td><\/tr>
    2<\/td>480000<\/td><\/tr>
    3<\/td>576000<\/td><\/tr>
    4<\/td>691200<\/td><\/tr>
    5<\/td>829440<\/td><\/tr>
    6<\/td>995328<\/td><\/tr>
    7<\/td>1194394<\/td><\/tr>
    8<\/td>1433272<\/td><\/tr>
    9<\/td>1719927<\/td><\/tr>
    10<\/td>2063912<\/td><\/tr>
    Total Capital Gain<\/strong><\/td>1663912<\/td><\/tr>
    Exemption of 1 lakh<\/strong><\/td>1563912<\/td><\/tr>
    10% Tax<\/strong><\/td>156391<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

    So the total payable tax becomes Rs 1.56 lakhs, but here\u2019s a clever trick to reduce how much tax you pay:<\/p>\n\n\n\n

      \n
    • If you sell your stocks and buy them back immediately, it\u2019s like hitting a reset button on your investment. It\u2019s still the same stock, but it\u2019s considered a new investment for tax purposes.<\/li>\n\n\n\n
    • By doing this, you can make it look like you\u2019re not earning as much each year, so you pay less tax.<\/li>\n<\/ul>\n\n\n\n

      Let\u2019s see how it works over a few years:<\/p>\n\n\n\n

        \n
      • Year 2: You earn \u20b980,000. That\u2019s less than \u20b91 lakh, so you pay no tax.<\/li>\n\n\n\n
      • Year 3: You earn \u20b996,000. Again, it\u2019s less than \u20b91 lakh, so no tax.<\/li>\n\n\n\n
      • Year 4: You earn \u20b91,15,200. This time, it\u2019s more than \u20b91 lakh, but you only pay tax over \u20b91 lakh. So, you subtract \u20b91 lakh and find that you have \u20b915,200 that can be taxed. The tax rate is 10%, so you pay 10% of \u20b915,200, which is \u20b91,520.<\/li>\n\n\n\n
      • If you continue paying these taxes yearly after the 10th year, the total tax will be Rs 78,791 instead of Rs. 1,56,391, which is 98% higher.<\/li>\n<\/ul>\n\n\n\n

        In simple terms, by selling and buying back your stocks, you\u2019re spreading out your earnings to keep them below the \u20b91 lakh limit each year, so you either pay no tax or a much smaller amount. It\u2019s like slicing a big cake into smaller pieces so each slice fits into a smaller box. Each slice is still part of the same cake, but you\u2019re packaging it differently to save space or, in this case, to save on taxes!<\/p>\n\n\n\n

        Year<\/strong><\/td>Amount in <\/strong>
        portfolio<\/strong><\/td>        		Capital Gain<\/strong><\/td>Taxes paid after the <\/strong>
        exemption of 1 lakh<\/strong><\/td><\/tr>
        1<\/td>400000<\/td>0<\/td>0<\/td><\/tr>
        2<\/td>480000<\/td>80000<\/td>0<\/td><\/tr>
        3<\/td>576000<\/td>96000<\/td>0<\/td><\/tr>
        4<\/td>691200<\/td>115200<\/td>1520<\/td><\/tr>
        5<\/td>829440<\/td>138240<\/td>3824<\/td><\/tr>
        6<\/td>995328<\/td>165888<\/td>6589<\/td><\/tr>
        7<\/td>1194394<\/td>199066<\/td>9907<\/td><\/tr>
        8<\/td>1433272<\/td>238879<\/td>13888<\/td><\/tr>
        9<\/td>1719927<\/td>286654<\/td>18665<\/td><\/tr>
        10<\/td>2063912<\/td>343985<\/td>24399<\/td><\/tr>
        Total Tax Paid<\/strong><\/td><\/td><\/td>78791<\/strong><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

        Tips for Investors<\/h3>\n\n\n\n
          \n
        • Plan Your Sales:<\/strong> Consider the timing of selling your assets to qualify for LTCG and benefit from lower tax rates.<\/li>\n\n\n\n
        • Tax Loss Harvesting:<\/strong> You can offset capital gains with capital losses, so consider selling underperforming assets to reduce your tax burden.<\/li>\n\n\n\n
        • Take Advantage of Exemptions:<\/strong> Certain exemptions, such as reinvestment in residential property or specified bonds, are available for LTCG, which can help with tax savings.<\/li>\n<\/ul>\n\n\n\n

          Conclusion<\/h3>\n\n\n\n

          Investing is about picking the right assets and understanding the tax rules for your returns. By being aware of the differences between short-term and long-term capital gains, you can make more informed decisions that align with your financial goals.<\/p>\n\n\n\n

          FAQs<\/h2>\n\n\n

          1. What are capital gains?<\/strong>\u00a0<\/h3>

            Capital gains are profits when you sell a capital asset, like property, stocks, or bonds, for more than its purchase price.<\/p>


          2. What is the difference between short-term and long-term capital gains?<\/strong> <\/h3>

            Selling an asset within 36 months (24 months for certain assets like unlisted equity shares) is considered a short-term capital gain (STCG). Selling after holding it longer is a long-term capital gain (LTCG).<\/p>

          3. How are short-term capital gains taxed?<\/strong><\/h3>

            STCG is taxed at the same rate as your regular income. There\u2019s a flat tax rate of 15% for equities and equity-based funds.<\/p>

          4. How are long-term capital gains taxed?<\/strong>\u00a0<\/h3>

            LTCG is taxed at a lower rate, generally 20%, with indexation benefits. For listed equities and equity funds, if the gain exceeds Rs 1 lakh, the tax is 10%.<\/p>

          5. What is indexation?<\/strong>\u00a0<\/h3>

            Indexation adjusts the purchase price of an asset for inflation, which can reduce the taxable gain.
            <\/p>

          6. Can I save tax on capital gains?\u00a0<\/strong><\/h3>

            Yes, there are ways to save tax, such as planning your sales to qualify for LTCG, tax loss harvesting, and taking advantage of exemptions like reinvestment in residential property or specified bonds.
            <\/p>

          7. Why is understanding capital gains important for investors?<\/strong>\u00a0<\/h3>

            Knowing the difference between STCG and LTCG can help you plan your asset sales, optimize your tax liability, and maximize your investment returns.<\/p><\/ul><\/div>","protected":false},"excerpt":{"rendered":"

            Investing can be a powerful tool for building wealth, but it\u2019s essential to understand the tax implications of your investment […]<\/p>\n","protected":false},"author":5,"featured_media":34857,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[1560,1535],"tags":[],"class_list":["post-34848","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-personal-finance-taxonomy","category-personal-finance"],"_links":{"self":[{"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/posts\/34848","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/comments?post=34848"}],"version-history":[{"count":0,"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/posts\/34848\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/media\/34857"}],"wp:attachment":[{"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/media?parent=34848"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/categories?post=34848"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/tags?post=34848"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}