Do the Digit Insurance

Key Diffrence Long-Term vs Short-Term Capital Gains

Capital gain is the profit you gain from selling or transferring a capital asset, such as jewelry, property, shares, etc. Securities that come under the rules of the SEBI Act of 1992 are known as capital assets in India.

Typically, these assets constitute short-term and long-term investments.

Keep reading to know the key differences between long-term and short-term capital gains.

Table of Contents

Meaning

List of Differences

Frequently Asked Questions

What are Short and Long-Term Capital Gains?

Here is the definition of LTCG vs STCG and the difference between long and short term capital gains.

Short-Term Capital Gains (STCG)

These gains are received from the sale of assets held for a short period - less than 24 months for real estate, physical gold, and other mutual funds and less than 12 months for unlisted bonds and securities.

Long-Term Capital Gains (LTCG)

These gains are received from the sale of assets held for longer periods. For most assets, the holding period is more than 24 months, but for unlisted bonds and securities, it is more than 12 months.

List of Difference Between Short-Term and Long-Term Capital Gains

Take a look at the table comparing long-term vs short term capital gains:

Basis of Comparison Short Term Capital Gain Long Term Capital Gain
Definition  Profit gained from the sale of short-term capital assets is short-term capital gain. Long-term capital gain arises from the sale of long-term capital assets.
Status of the capital asset  Any capital asset, unlisted shares or land and buildings held for a period of not more than 24 months before transfer shall be treated as a short-term capital asset.

Additionally, listed securities, zero coupon bonds, and equity-oriented mutual funds need to be held for a period of less than 12 months to be classified as short-term capital assets.		 Any capital asset, unlisted shares or land and buildings held for a period of more than 24 months before transfer shall be treated as a long-term capital asset.

Additionally, listed securities, zero coupon bonds, and equity-oriented mutual funds must be held for a period exceeding 12 months to be considered as long-term capital assets.
Market aspect Traders have a short-term market perspective and can sell over shorter periods, attaining quicker profit. Investors maintain a long-term market perspective, which brings them higher profits on selling their assets.
Profit attained Sellers may obtain lower profits because of the short holding period and assets are not well-established in the market. Sellers anticipate higher profit since the assets’ holding period is over a year and they are well-established in the market.
Risk involvement It involves lower risks as the holding period is relatively shorter. Investing in long-term assets involves higher risk because of the lengthy waiting period, the assets may become non-liquid later. 
Taxability 20% tax is applicable on short term capital gains that fall under section 111A, excluding surcharge and cess.

STCGs that do not fall under section 111A are taxable at a regular income tax rate.		 12.5% tax is applicable on long term capital gains, excluding cess and surcharge. Also, as per Budget 2024, all indexation benefits have been removed.

How to Calculate Your Capital Gains After Budget 2024?

The Union Budget 2024 hiked the tax rate applicable to STCG to 20% from 15%. Whereas the LTCG tax rates are increased from 10% to 12.5% for all capital assets. So, to know how to calculate your capital gains after Budget 2024, follow these steps:

For Long-Term Capital Gains (LTCG)

  • Calculate the total amount obtained from selling the assets.
  • Subtract any costs directly related to their transfer and the inflation on the original amount.
  • Adjust the cost of any improvements for inflation and subtract this amount as well.
  • Deduct the exemptions applicable to you under Sections 54, 54D, 54EC, 54F, and 54B.
  • Now, this is the amount that is taxable as per LTCG tax rates.

For Short-Term Capital Gains (STCG)

  • Calculate the total amount obtained from selling the assets.
  • Subtract any costs directly related to their sale and also the original purchase price of the asset.
  • Now subtract the costs of any improvements made to the asset.
  • Subtract any exemptions applicable to you under Sections 54B and 54D.
  • The remaining amount will be taxed as per the STCG tax rates.

Both short- and long-term capital gains are taxable as these are leading means of income. However, the Income Tax act defines the applicable exemptions for individuals.

Meanwhile, the table above sums up short vs long term capital gains; the primary difference is in the holding period, profit and risk among these two capital gains.

FAQs about Long & Short-Term Capital Gains

Are capital gains taxable in India?

Being one of the heads of earning, both short and long-term capital gains are taxable in India.

What is the difference between the holding period of financial assets in STCG and LTCG?

The holding period of financial assets is less than 1 or 2 or 3 years in case of short-term capital gain. On the other hand, it is over 1 or 2 or 3 years in case of long-term capital gains.

What is the LTCG and STCG tax rate?

LTCG is usually taxed at a lower rate at 12.5%, whereas STCG is taxed at 20% and for some assets at ordinary income tax slab rates, which can be higher than LTCG.

What types of assets are subject to LTCG and STCG?

Both LTCG and STCG apply to a wide range of assets, including stocks, bonds, real estate, and other investments.

Which is a better tax saving investment: LTCG or STCG?

LTCG is generally more tax efficient as it has lower tax rates, making it advantageous to hold investments for more than a year.

Is long-term capital gain taxable?

Long-Term Capital Gains (LTCG) in India are taxed at a 12.5% rate (plus surcharge and cess) if they reach ₹1.25 lakh in a fiscal year, starting July 23, 2024.

Can I convert long-term capital gains into short-term capital gains?

No, you cannot convert LTCG into STCG as the holding period of the asset determines whether it qualifies as LTCG or STCG.