Short-Term Capital Gains (STCG) Tax: Rules, Rates & Calculation

20 Dec 2025

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Investors planning for short-term gains should also be aware on how the profits are taxed. This is important whether you trade equities, invest in mutual funds, or sell other capital assets within a shorter period. By knowing how STCG is calculated and taxed helps you plan your transactions better and avoid unexpected tax outcomes.This guide explains how short-term capital gains are taxed. It also provides tips for managing these gains.What is Short-Term Capital Gains (STCG)?In the case of capital asset profits, taxation is determined based on the period of its holding. If the assets are held for 24 months, or 12 months in the case of equity shares and equity-oriented mutual funds, the profits fall under Short-Term Capital Gains.Taxation on short-term capital gains has broad applicability to listed equity shares, equity-oriented mutual funds, real estate, debt mutual funds, bonds, and many other forms of capital assets.Short-Term Capital Gains Tax RateThe Short-Term Capital Gains Tax Rate depends on the type of asset being sold. Gains from specified equity-related assets are taxed at a flat rate, while gains from other short-term transactions are added to your total taxable income and taxed as per your income tax slab. Surcharge and cess are applied based on the prevailing rules for your income level.Key Rules of STCGShort-term capital gains follow specific rules that determine how they are classified, calculated, and taxed. Key points include:

Whether an asset is financial or non-financial, listed or unlisted, and whether STT applies determines the rules for identifying STCG. Only the classification is determined by these factors. For example, when listed equity shares are sold within the short-term period, short-term capital gain tax on shares is applicable; other assets are subject to different regulations.

STCG must be reported in the same fiscal year that the transfer occurs. Even if the proceeds are received later, the gain is taxable in that year.

Before calculating taxable gains, only transaction-related costs like commission, broking, and transfer fees may be subtracted from the sale price. These are not tax-saving tactics, but rather adjustments related to compliance.

Short-term capital losses can be set off against eligible gains and carried forward for several years, provided the return is filed within the prescribed timelines.

Short-term gains are computed without increasing the cost of acquisition for inflation.

Whatever tax applies to the gain is increased by surcharge and cess as per the taxpayer’s income level.

Individuals who trade or transact frequently across asset classes often deal with STCG due to shorter holding periods.

Advantages of the Short-Term Capital Gains (STCG) Tax Structure for InvestorsFor taxpayers, short-term capital gains taxes offer advantages that help in planning transactions more effectively.

Access to Liquidity: Taxpayers can sell assets early and complete their tax obligations within clear rules, allowing faster use of funds.

Useful for Short-Term Financial Planning: STCG taxation supports goals where investors may not want to wait for long holding periods.

Supports Active Investing Styles: Frequent traders can realise gains without long-term lock-ins.

Losses can Lower Future Taxes: Short-term losses can reduce taxable gains in future years.

How to Calculate Short-Term Capital Gain?To calculate your short-term capital gain accurately, follow these step-by-step instructions.

Step 1: Check the holding period. If you sold the asset within the short-term limits set for that asset class, the gain is classified as STCG.

Step 2: Record the total amount you received from selling the asset.

Step 3: Deduct expenses directly connected to the sale, such as brokerage, commission, or transfer fees.

Step 4: Use the actual purchase price paid for the asset. Indexation is not allowed for STCG.

Step 5: Apply the formula to calculate STCG: Short-Term Capital Gain = Sale Value – (Purchase Cost + Transfer Expenses)

Step 6: STCG is taxed as per the taxpayer’s normal income tax slab. STCG under Section 111A is taxed at the special rate.

Example Calculation of STCGYou buy 100 shares at ₹100 each

Total purchase cost = ₹10,000

After 8 months, you sell them for ₹120 per share

Total sale value = ₹12,000

Now calculate the gain: ₹12,000 (sale value) – ₹10,000 (purchase cost) = ₹2,000 STCGSince this is a short-term sale and it comes under Section 111A, the short-term capital gains tax rate applicable is 20%.So the short-term capital gain tax on shares will be: 20% of ₹2,000 = ₹400(Plus surcharge and cess as applicable)Open DBS Treasures AccountShort-Term vs. Long-Term Capital GainsKnowing the difference between short term vs long term capital gains helps you assess how timing a sale can change your tax outcome.

Category	Short-Term Capital Gains (STCG)	Long-Term Capital Gains (LTCG)
Holding Period	Asset held for a short duration as defined for each asset class	Asset held beyond the specified long-term threshold
Tax Basis	Taxed at special rates or as per income tax slab	Taxed at long-term rates that may include exemptions or thresholds
Indexation Benefit	Not allowed	May be allowed for certain asset classes
Loss Treatment	Short-term losses can be set off against most gains	Long-term losses can be set off only against long-term gains
Impact on Investors	Suited for frequent trades or early exits	Encourages longer holding due to favourable tax treatment

STCG Tax on Specified AssetsShort-term capital gains follow separate tax rules depending on the type of asset and whether the transaction qualifies under Section 111A. Key points include:

Shares: The 20 percent short-term capital gains tax rate applies to listed equity shares under Section 111A.

Mutual Funds: Equity-oriented mutual funds and business trust units on which STT is paid are also taxed at 20 percent.

Property: The short-term capital gain tax on property, including real estate, is calculated based on the taxpayer’s income tax slab.

Debentures and Bonds: Gains from short-term sales of debentures and bonds are added to taxable income and taxed according to slab rates.

ULIPs: Short-term gains from ULIPs held for less than three years are taxed as per the applicable slab rate.

Surcharge and health and education cess apply to the tax amount.

The Income Tax Bill 2025 keeps the existing STCG structure unchanged, providing stability and predictability for taxpayers.

Tax Rate on Equity Shares and Mutual Funds Under Section 111A

Section 111A of the Income Tax Act applies to short-term capital gains from listed equity shares, equity-oriented mutual funds, and units of business trusts when the transaction is subject to STT. These gains are taxed at 20 percent (effective from 23 July 2024). Key points:

The rate increased from 15 percent to 20 percent.

No indexation benefit is allowed.

Surcharge and cess apply in addition to the 20 percent tax.

Residents may adjust gains against the basic exemption limit; non-residents cannot.

The rate applies under both old and new tax regimes.

Also Read: Tax on Equity Mutual FundsTips & Strategies to Reduce Capital Gains TaxesSeveral practical steps can help reduce the overall tax impact of capital gains.

Use capital losses from underperforming assets to offset taxable gains.

Hold assets beyond the long-term threshold when possible.

Time your asset sales in years when your taxable income is lower.

Use the basic exemption limit if you are eligible.

Limit frequent switches or short-term trades.

Choose investment options that align with long-term goals.

Parking gains in a DBS Treasures premium savings account allows you to optimise liquidity, plan reinvestments, and ensure funds are readily available for tax payments.Also Read: Long-Term Capital Gains Tax (LTCG)How Much of a Short-Term Capital Gain Is Tax Free?Short-term capital gains do not have a specific short term capital gain tax exemption limit. These gains are fully taxable either at your income tax slab rate or at 20 percent for listed equity shares, equity-oriented mutual funds, and business trust units covered under Section 111A. Relief is only available through the basic exemption limit or by setting off eligible short-term capital losses.Open DBS Treasures AccountConclusionBeing aware of short-term capital gains tax in India helps taxpayers plan their transactions with confidence. Since STCG is taxed based on the asset type and holding period, knowing the rules allows you to estimate how much of your short-term capital gain may be tax-free. To manage your investments more effectively, you can create a wealth account with DBS Treasures for guidance, mutual fund portfolio support, and long-term financial planning.Disclaimer: The information provided in this article is for general informational purposes only. For specific guidance or details, please consult with your Relationship Manager or a relevant expert.