Learn everything about STCG on shares from the point of view of Indian Taxation. We are going to learn what is meant by STCG (Short Term Capital Gain), its calculation, tax implications and the ways to reduce tax liability legally. We have tried to cover all the aspects of STCG on Shares in the following article. As many of us are mostly involved in share trading through stock exchanges, the article mainly focuses on STCG on listed shares.
Table of Contents
For stock market traders and investors, it is important to understand what is meant by Short-Term Capital Gains i.e. STCG on shares because it represents an essential financial concept. Knowledge of STCG on shares benefits both experienced and novice investors/traders as it helps them plan taxes efficiently, avoid tax notices and achieve their financial goals. The article provides extensive details about STCG on shares alongside its definition method of calculation and taxation system and ways investors can reduce their tax responsibilities.
What is STCG on Shares?
STCG is an acronym for Short Term Capital Gain. To understand this correctly, we need to first understand, what is meant by “short term”, what is meant by “capital” and what is meant by “gain”. In this article, we are discussing a specific asset class i.e. listed Indian equity shares. Now, let me explain you each concept in detail.
Holding Period
The holding period is the first important step in determining whether the particular shares are short term or not.
As per section 111A of the Income Tax Act, 1961, where listed equity shares are held for a period less than 12 months, they constitute as short term capital asset. That means, if you buy a share and hold it for a period of less than 12 months then the same is termed as short term capital asset. For example, if you bought shares of Company A on 12/05/2024 and sold the same on 21/01/2025 then that means that you have held these shares for a period of less than 1 year and this constitutes short term capital asset.
Note: If a share is held for less than 1 day i.e. bought and sold on the same day then this is not considered as a short term capital asset. It is called as speculative transaction as per the Income Tax Act, and provisions for the same are different than those mentioned in this article.
The terms “Capital” and “Gain”
The asset sold should be of a capital nature. What does that mean? In simple terms, it means that if your main business is trading in the stock market then such transactions would not constitute capital transactions. These are your business transactions and provisions of short term capital gains won’t apply here.
Secondly, the term “Gain” in the “Short Term Capital Gain” means the realized gains. That means taxability arises only upon the sale of such shares. We will see the criteria of 12 months and other provisions only after you make a sale. If you have not sold the shares and have only unrealized gain then no tax would be calculated for that. Taxation of STCG on shares only arises in the event of short term sale of shares.
Note: If you sold such short term assets at a loss then it will be termed as short term capital loss and tax liability arises only in case of gains, not in case of loss.
I hope you have understood so far what is meant by short term capital gains. Now let’s dive deeper into other aspects like how to calculate gains, tax rate, etc.
How to calculate STCG on Shares?
As you are now familiar with the term what is meant by “Short Term” for listed Indian shares, let us understand what is meant by gain.
The basic formula for calculating gain is: Total Sale Value – Total Purchase Value. That means, at the time of the sale of shares, you need to calculate the total amount received on sale minus the total purchase value of such shares.
The Income Tax Department allows for the deduction of selling expenses from the sale consideration. Therefore, the updated formula is: (Total Sale Value – Selling Expenses) – Total Purchase Value. The amount of (Total Sale Value – Selling Expenses) is referred to as the Net Sale Consideration.
Now, the basic question that pops up into the mind is what is meant by selling expenses? Here, selling expenses means all the expenses in relation to selling of such shares but excluding STT (Securities Transactions Tax). The department does not allow the deduction of STT while calculating Net Sale Consideration.
Let us understand the discussed concepts with an example:
Number of shares held for Company A: 100
Selling price per share: Rs.50
Sale date 20/02/2025
Expenses incurred on selling 100 shares (excluding STT): Rs.20
Purchase price per share: Rs.40
Buy date 12/10/2024
Now, as the holding period of shares is less than 1 year, let’s calculate STCG on Shares:
Total Net Sale Consideration – Total Purchase Value
[(100X50)-20]-[100×40]
4980-4000
980
Hence, in the given example, the STCG on Shares is Rs.980/-.
I hope these concepts are now clear to you. Now, let’s move forward to the next section.
Tax Rate for STCG on Shares
As per Section 111A of the Income Tax Act, 1961, the applicable tax rate for STCG on shares that are listed in the Indian Stock market is 20% w.e.f. 23/07/2024. Before 23/07/2024, the same rate was 15% which has now been increased to 20%. Further, 4% of the education cess is added to this tax amount. Hence, the effective tax rate is 20.8%.
That means, if you make any sale transactions on or after 23/07/2024 that result in STCG on shares then the tax rate of 20% will be applicable to you. If such a similar transaction is made before 23/07/2024 then the earlier 15% rate will apply.
In the given example in the earlier section, the tax would be 980×20% i.e. Rs.196 plus 4% education cess Rs.7.84. Hence, total tax amount is Rs.203.84.
I hope you have got some idea about STCG on shares and how the taxation works for the same.
Frequently Asked Questions (FAQs)
I have purchased some shares but have not sold them yet, do I need to pay tax on the unrealized gains?
No, taxability arises only upon selling such shares and not on unrealized gains.
I sold some shares in February 2025, when do I need to pay tax on the same?
In India, taxation is based on the transactions made by you during a financial year, which runs from April 1 to March 31. The calculation and payment of tax for the transactions in a given financial year are typically done after March 31, with the due date usually being before July 31.
Do the stock brokers provide readymade capital gain reports for reference?
Yes, most of the brokers provide readymade capital gain reports by calculating your holding period and gains for the same. You can check into the “Reports” section in the broker app/website.
Do any experts provide such tax calculation services?
Yes, CAs and Tax Consultants often provide tax caluclation and filing services at a professional fees. If you are interested into how to become CA yourself then please visit our article here.
I have sold some shares in loss, do I need to pay tax on that?
No, tax liability arises only in case of gains and not in case of loss. Further, you can take benefit of such short term loss against short term gains.
Conclusion
In the above article, we discussed many aspects related to STCG on shares including calculation of gains and taxation of same. Always take advice from qualified professionals if you are unsure about the taxability or calculations.
Thanks for reading the article. Happy reading!