LTCG & STCG Tax

Published by Anand (B.Tech, M.Tech, MBA Finance)

Detail Explanation of LTCG and STCG Tax

LTCG and STCG stand for Long-Term Capital Gains and Short-Term Capital Gains, respectively. They are the two types of capital gains that can arise when you sell an asset, such as stocks, bonds, mutual funds, real estate, or other property.

Capital gains refer to the profit or gain that you make on the sale of an asset. The capital gain is calculated as the difference between the sale price and the cost price of the asset.

When it comes to taxation, the tax treatment of LTCG and STCG is different in most countries, including India.

In India, for instance, LTCG and STCG are taxed differently. LTCG is the gain made on the sale of an asset held for more than 12 months, while STCG is the gain made on the sale of an asset held for less than 12 months.

LTCG Tax:

In India, LTCG is taxed at 20% with the benefit of indexation, which allows for inflation adjustment in the cost of acquisition of the asset. The indexed cost is calculated using the cost inflation index (CII) published by the government every year. The holding period is also taken into account while calculating the tax liability.

However, under the Finance Act 2018, any long-term capital gain exceeding Rs 1 lakh in a financial year on the sale of listed equity shares or equity-oriented mutual funds is subject to a tax of 10% without indexation.

STCG Tax:

On the other hand, STCG is taxed at the normal income tax rate applicable to the taxpayer. For example, if your total income, including the STCG, falls under the 30% tax slab, you will have to pay a 30% tax on the STCG.

It is important to note that the holding period plays a crucial role in determining the tax treatment of capital gains. Therefore, it is essential to know the holding period of the asset to determine the applicable tax rate. Additionally, tax laws and rates may change from time to time, and taxpayers should consult a tax expert or refer to the relevant government regulations for the latest information on LTCG and STCG tax.