Whether you’re new to investing or have started building your portfolio, it’s important to understand how your profits are taxed. One of the biggest factors is how long you hold your investments. That’s where STCG vs LTCG comes into play.
Let’s understand the basics of India’s Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG) tax.
What Are Capital Gains?
Capital gains are the profits from selling assets, including shares, property, and gold, exceeding their original purchase price. A capital gain occurs when you sell your flat, for example, at ₹50 lakh after purchasing it for ₹40 lakh, so you earn ₹10 lakh profit from your investment. You can earn these profits either in the short term or long term, based on your asset’s holding period before selling it. However, capital gain taxation rules generally apply to these gains.
What are Short-Term Capital Gains (STCG)?
Short-term capital Gains, or STCG, are the profit you make when you sell an asset within a short period after buying it. For example, any gain is considered short-term if you sell shares within 12 months or property within 36 months. These gains are usually taxed at a higher rate compared to long-term ones.
Short-Term Capital Gains Tax Rates
Let’s talk more about short-term capital gains tax rates.
- STCG is taxed at a flat rate of 15% for equity shares and mutual funds.
- For other assets like real estate or gold, your gain is added to your income and taxed according to your regular income tax slab. For example, if you’re in the 30% tax bracket and sell property within two years, your short-term gain will be taxed at that same 30%.
What are Long-Term Capital Gains (LTCG)?
Your profits are considered long-term when you hold an asset longer than the minimum period. Long-term capital gains encourage people to invest longer, often leading to better returns. Here’s how that works:
- Real estate, gold, debt mutual funds: Held for more than 36 months
- Shares and equity mutual funds: Held for more than 12 months
Long-Term Capital Gains Tax Rates
One of the big benefits of long-term investing is that you usually pay lower taxes on your gains. That’s where long-term capital gains tax rates come in.
Here’s how it works:
- For equity investments, gains above ₹1 lakh per year are taxed at 10%, without indexation.
- For real estate and other long-term assets, gains are taxed at 20% with indexation benefit (this means you can adjust the purchase price for inflation, which reduces your tax).
STCG vs LTCG: Key Differences
Here’s a handy table to summarise the difference between LTCG and STCG:
| Feature | STCG | LTCG |
| Holding period (Equities) | Less than 12 months | More than 12 months |
| Holding period (Property) | Less than 36 months | More than 36 months |
| Tax rate (Equity) | 15% | 10% (above ₹1 lakh) |
| Tax rate (Other Assets) | As per the income tax slab | 20% with indexation |
| Tax advantage | Lower | Higher |
| Suitable for | Short-term trading, quick gains | Long-term investing, wealth building |
Why Should You Know the Difference?
Knowing the difference between short-term and long-term capital gains isn’t just for tax experts – it’s something every investor should understand. Here’s why it matters:
1. Plan Your Investments Better
Understanding if your profits fall under STCG or LTCG taxation categories enables you to make wiser investment decisions regarding buying and selling opportunities. The potential tax implications will support your decision about the duration of shareholding when you intend to sell them.
2. Time Your Withdrawals Smartly
When you have only a couple of weeks before entering into the long-term holding period, your tax burden will decrease considerably if you delay the sale until later. Calmly waiting for a short period can result in bigger earnings retention.
3. Boost Your Overall Returns
Your profits will face a reduction because of capital gains tax rates. You can achieve maximum net returns using lower taxes for long-term capital gains. Continued regular investments together with this strategy will create substantial effects on your financial gain in the future.
4. Reduce Unnecessary Stress During Tax Season
Tax season becomes less stressful because no one desires unpleasant surprises while filing taxes. Knowing the difference between short-term and long-term capital gains allows you to keep accurate records and make advance arrangements to prevent rushing for last-minute solutions. Being informed on STCG vs LTCG enables you to claim deductions and benefits that belong to you properly.
5. Make Your Investment Journey More Tax-Efficient
Whether you’re building a retirement fund, saving for a home, or just growing your wealth, knowing how capital gains work helps you structure your investments in a way that minimises tax and maximises growth.
STCG vs LTCG Made Simple: Make Smart Investments
Every investor at any experience level must know the distinction between LTCG and STCG. Even though taxes are not exciting, they determine the profit you retain.
If you love trading and taking quick wins, just know the short-term capital gains tax rates. But if you’re playing the long game, then long-term capital gains tax rates work in your favour, and you may keep more of your hard-earned profits. Join communities like Made for Trade by Dhan to learn more about investing, STGG and LTCG.
