What are short-term and long-term capital gains taxes?


.

Any income or loss resulting from the sale of equity shares is covered under “capital gains”. Income under this heading is further categorized into long-term capital gains and short-term capital gains depending on the holding period of the shares.

.

The holding period takes into account the length of time the investment is held from the date of acquisition until the date of sale or transfer. For income tax purposes, the holding periods for publicly traded stocks and equity mutual funds are different from those for other asset classes.

.

If publicly traded stocks are sold within one year of purchase, the seller may realize a short-term capital gain (STCG) or a short-term capital loss (STCL). The seller realizes a short-term gain when the shares are sold at a price higher than the purchase price. Short-term capital gains are taxable at 15%, regardless of the tax bracket to which the investor falls.

.

Any short-term capital loss resulting from the sale of equity shares may be offset by a short-term or long-term capital gain from any capital property. If the loss is not fully offset, it can be carried forward for eight years and adjusted for any short-term or long-term capital gains realized during those eight years. A taxpayer will only be allowed to carry forward losses if they have filed their tax return on time.

If publicly traded stocks are sold after 12 months of purchase, the seller may realize a long-term capital gain (LTCG) or suffer a long-term capital loss (LTCL). Until March 31, 2018, the long-term capital gain realized on the disposal of stocks or shares of equity-oriented mutual funds was exempt from tax.

.

But the rules have changed from April 1, 2018. Now if a seller realizes a long-term capital gain of more than Rs 1 lakh on the sale of shares or equity-oriented units of a mutual fund investment, the realized gain will attract a long term capital gains tax of 10% – plus applicable tax. Moreover, the benefit of indexation will not be available to the seller.

.

Any long-term capital loss resulting from a transfer made on or after April 1, 2018 may be offset and carried forward in accordance with the existing provisions of the Income Tax Act. Thus, the long-term capital loss can be offset by any other long-term capital gain. This loss can also be carried forward for the following eight years.

.

.

Dear reader,

Business Standard has always endeavored to provide up-to-date information and commentary on developments that matter to you and that have wider political and economic implications for the country and the world. Your constant encouragement and feedback on how to improve our offering has only strengthened our resolve and commitment to these ideals. Even in these challenging times stemming from Covid-19, we remain committed to keeping you informed and updated with credible news, authoritative opinions and incisive commentary on relevant topical issues.
However, we have a request.

As we battle the economic impact of the pandemic, we need your support even more so that we can continue to bring you more great content. Our subscription model has received an encouraging response from many of you who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of bringing you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practice the journalism we are committed to.

Support quality journalism and subscribe to Business Standard.

digital editor


First published: Friday 05 August 2022. 07:00 IST





























About Nunnally Maurice

Check Also

A tea seller causes the explosion of an oil tanker in Niger

A local tea vendor inadvertently caused an explosion of water tankers in Niger State as …