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

Any income or loss that is made from sale of equity shares is covered under the head ‘capital gains’. Income under this head is further classified into long term capital gains and short term capital gains based on the holding period of the shares.

Holding period takes into account the duration for which the investment is held beginning from the date of acquisition to the date of sale or transfer. For income tax purposes, the holding periods for listed equity shares and equity mutual funds are different from that of other asset classes.

If equity shares listed on a stock exchange are sold within a year of purchase, the seller may make short term capital gain (STCG) or incur a short-term capital loss (STCL). The seller makes short-term capital gain when shares are sold at a price higher than the purchase price. Short-term capital gains are taxable at 15 per cent -- irrespective of the tax slab the investor falls under.

Any short term capital loss from sale of equity shares can be offset against short-term or long-term capital gain from any capital asset. If the loss is not set off entirely, it can be carried forward for eight years and adjusted against any short term or long term capital gains made during these eight years. A taxpayer will only be allowed to carry forward losses if he has filed his income tax return within the due date.
 

If equity shares listed on a stock exchange are sold after 12 months of purchase, the seller may make a long-term capital gain (LTCG) or incur a long-term capital loss (LTCL). Until March 31, 2018, long-term capital gain made on the sale of equity shares or equity-oriented units of mutual funds was exempt from tax.

But the rules changed from April 1, 2018. Now if a seller makes a long-term capital gain of more than Rs 1 lakh on the sale of equity shares or equity-oriented units of a mutual fund, the gain made will attract a long term capital gains tax of 10 percent -- plus applicable cess. Also, the benefit of indexation will not be available to the seller.

Any long term capital loss from a transfer made on or after April 1, 2018 will be allowed to be set-off and carried forward according to the existing provisions of the Income Tax Act. So, the long-term capital loss can be set-off against any other long-term capital gain. Such loss can also be carried forward for subsequent eight years.