Short-Term Capital Gain Tax
in India — Complete Guide
Updated for the New Income Tax Bill, 2025 · Effective from AY 2026–27
Profits earned from selling a capital asset before completing the prescribed holding period are taxed as Short-Term Capital Gains (STCG). Whether you trade shares, redeem mutual funds, sell property, or liquidate gold, understanding STCG rules under both the Income Tax Act, 1961 and the newly enacted Income Tax Bill, 2025 is essential for correct ITR filing and smart investment planning.
What is Short-Term Capital Gain?
A Short-Term Capital Gain (STCG) arises when a capital asset is transferred or sold before completing the prescribed holding period as defined under the Income Tax Act, 1961 (and mirrored in the Income Tax Bill, 2025). The nature of the gain — short-term or long-term — determines the applicable tax rate.
Governed by Section 48, Income Tax Act, 1961
Section 48 prescribes the mode of computation of capital gains. It allows deduction of the cost of acquisition, cost of improvement, and expenses incurred wholly and exclusively in connection with the transfer.
§ Clause 55, IT Bill 2025 mirrors this provision with simplified language.
Holding Period for Short-Term Classification
The holding period threshold differs by asset class. If the asset is sold after this period, the gain qualifies as Long-Term Capital Gain (LTCG) and attracts a lower tax rate.
| Capital Asset | STCG Holding Period | STCG Tax Rate | Governing Section |
|---|---|---|---|
| Listed Equity Shares | ≤ 12 months | 20% | Sec. 111A / Clause 196 |
| Equity-Oriented Mutual Funds | ≤ 12 months | 20% | Sec. 111A / Clause 196 |
| Units of Business Trusts (REITs/InvITs) | ≤ 12 months | 20% | Sec. 111A / Clause 196 |
| Immovable Property (Land / Building) | ≤ 24 months | Slab Rate | Sec. 2(42A) / Clause 2 |
| Gold & Jewellery | ≤ 24 months | Slab Rate | Sec. 2(42A) / Clause 2 |
| Debt Mutual Funds (post-Apr 2023) | ≤ 24 months | Slab Rate | Sec. 50AA / Clause 67 |
| Bonds & Debentures | ≤ 12 mo (listed) / ≤ 36 mo (unlisted) | Slab Rate | Sec. 2(42A) |
| Unlisted Shares | ≤ 24 months | Slab Rate | Sec. 2(42A) |
STCG Tax Rates in India (FY 2025–26)
1. Under Section 111A — § Clause 196, IT Bill 2025
Section 111A (Clause 196 in the new IT Bill, 2025) applies to gains from the sale of listed equity shares, units of equity-oriented mutual funds, and units of business trusts (REITs, InvITs) — where Securities Transaction Tax (STT) has been paid.
Rate Change — Budget 2024
For transfers made on or after 23 July 2024, the STCG tax rate under Section 111A was revised from 15% to 20% via the Finance (No. 2) Act, 2024. The Income Tax Bill, 2025 retains this rate unchanged under Clause 196.
2. STCG on Other Assets — Taxed at Slab Rate
For assets not covered under Section 111A — including property, gold, debt mutual funds, bonds, unlisted shares, and jewellery — the short-term capital gain is added to the taxpayer’s total income and taxed at the applicable income-tax slab rate (10%, 20%, or 30% depending on total income).
Worked Examples
Example 1 — Listed Equity Shares (Section 111A)
Example 2 — Property Sold within 24 Months (Slab Rate)
Adjustment of Basic Exemption Limit
Resident individuals and HUFs who have income below the basic exemption limit can utilise the remaining exemption against STCG under Section 111A before applying the flat 20% rate. This benefit is not available to Non-Resident Indians (NRIs) or foreign companies.
Set-Off and Carry Forward of STCG Losses
A Short-Term Capital Loss (STCL) can be set off against both STCG and LTCG in the same assessment year. Any unabsorbed loss can be carried forward for 8 assessment years subject to timely ITR filing.
STCL Short-Term Capital Loss
LTCL Long-Term Capital Loss
New IT Bill, 2025 — Clause 536(n): One-Time Relief from FY 2026–27
Under Clause 536(n) of the Income Tax Bill, 2025, any Long-Term Capital Loss (LTCL) brought forward as on 31 March 2026 (computed under the old Act) can be set off against both STCG and LTCG from AY 2026–27. Under the old Section 74, LTCL could be set off only against LTCG. This one-time transitional relief gives taxpayers greater flexibility in adjusting accumulated capital losses.
File ITR On Time to Avail Carry Forward
Carry forward of capital losses is available only if the ITR is filed within the due date under Section 139(1). Filing a belated return forfeits the right to carry forward these losses.
STCG and ITR Filing
Short-term capital gains must be reported under the correct schedule in the Income Tax Return. Using the wrong ITR form is one of the most common errors flagged by the IT Department.
| Taxpayer Profile | Applicable ITR Form | Key Schedule |
|---|---|---|
| Salaried individual with capital gains (no business income) | ITR-2 | Schedule CG |
| Business / professional income + capital gains | ITR-3 | Schedule CG |
| Presumptive business income (44AD/44ADA) + capital gains | ITR-3 or ITR-4 (ITR-4 only if STCG from listed equity ≤ ₹1.25 lakh and no LTCG) |
Schedule CG |
| Companies / LLPs with capital gains | ITR-6 / ITR-5 | Schedule CG |
Segregation by Transaction Date (AY 2025–26 onwards)
Updated ITR forms require taxpayers to report capital gains separately for transactions executed before and after 23 July 2024, in line with revised rates introduced by the Finance (No. 2) Act, 2024. Ensure your broker’s contract notes clearly indicate transaction dates.
Key Legal Provisions — Income Tax Act 1961 & IT Bill 2025
STCG on listed equity shares, equity mutual funds & business trust units where STT is paid. Rate: 20%.
LTCG on equity assets. Rate: 12.5% on gains above ₹1.25 lakh annual exemption. Requires 12+ month holding.
LTCG on other capital assets (property, gold, bonds, unlisted shares). Rate: 12.5% without indexation (post-23 July 2024).
Mode of computation of capital gains. Prescribes deductions for cost of acquisition, improvement, and transfer expenses.
Set-off and carry forward of capital losses. Clause 536(n) introduces one-time LTCL vs. STCG set-off from FY 2026–27.
Debt mutual funds (units acquired after 1 Apr 2023) — gains taxed at slab rates regardless of holding period.
Latest Updates in Capital Gains Taxation (2024–25)
Budget 2024 (w.e.f. 23 July 2024): STCG rate under Section 111A increased from 15% to 20%; LTCG rate under Section 112A raised from 10% to 12.5%; annual LTCG exemption enhanced from ₹1 lakh to ₹1.25 lakh.
LTCG on Property: Rate reduced to 12.5% without indexation (previously 20% with indexation). For properties acquired before 23 July 2024, taxpayers may choose the lower of the two methods.
Buyback Tax (w.e.f. 1 Oct 2024): Proceeds from share buybacks by listed domestic companies are treated as deemed dividends — no longer taxed as capital gains.
Income Tax Bill, 2025: Introduced in Lok Sabha; language simplified, structure reorganised, but capital gains tax rates and structure remain unchanged. Effective from AY 2026–27.
Clause 536(n), IT Bill 2025: One-time relief allowing long-term capital losses (up to 31 Mar 2026) to be set off against STCG from AY 2026–27.
Stricter ITR Reporting: Updated forms require date-wise segregation of capital gain transactions around the 23 July 2024 pivot date.
