STCG & LTCG

Every year, an investor needs to file income tax returns at the IT department. In this process, the IT department classifies the nature of earnings through asset classes.

In the equity markets, mutual funds, or share markets, in India, or across the global stock exchanges governments do not treat capital gains on long-term/short-term holding alike.

What is LTCG & STCG?

In money markets, investments vested for the long-term stocks are said to be a sign of good relief on selling out.

A long-term investment maintains stocks in stock markets for a longer duration thus forming a greater financial stocks balance.

In order to retain such conditions, the CBDT discounts taxation on capital gains on long-term fundings.

While the opposite happens if an investor plans to back out by selling shares within a year of its investments.

The IT department doesn’t bother about the losses incurred by an investor through selling though. It is made mandatory to tax the stock funds whether an investor incurs gain or loss.

Now, in gist, to say, the long term Capital Gain (LTCG) produces a fair amount of profitability than Short Term Capital Gain (STCG).

Hence, the government of India encourages long-term investments in all asset classes.

LTCG (3 years)/STCG ( 1 year) in Equity Markets

Equity markets are highly volatile and stock fluctuations are intangible. Equity term doesn’t limit to regular buying and selling of stock in both the leading Indian stock exchanges Bombay Stock Exchange, or National Stock Exchange.

Other equities that include are the companies that launch an Initial Public Offering, and the mutual funds. The Central Board of Direct Taxes (CBDT) favors long-term capital gain on asset classes such as property ( land, apartments), gold, debt, mutual fund investments, bonds, and so on.

The direct taxes department specifies the minimum holding period must be for a period of 36 months ( 3 years).

Other areas of equity funds like hybrid funds such as ( balanced funds, (Arbitrage funds)) also gain preferential LTCG advantage provided at least 65 percent of the holdings are in equity.

In case, equity is sold in less than 12 months ( 1 year) of its purchase then it is classified as STCG.

LTCG/STCG Equities Get Preferences Among Asset Classes:

LTCG/STCG Equity Gains:

Except for equities, all other asset classes will be subjected to taxation on LTCG @ 20 % after indexation. Whereas in the equity market, the LTCG is completely tax-free.

For instance, an investor purchases stock and sells out the shelved stocks after 1 year, CBDT exempts tax on the capital gains. It doesn’t matter how much one gains on capital.

Two instances arise if an investor plans for STCG and they are taxed on nonequity assets and equity assets.

STCG is included under the head of ‘Other Income.’ For non-equity assets, the CBDT taxes on a 30 percent tax bracket, and on equity assets, the taxation shall be @ 15 %.

Thus it is a clear indication that the CBDT levies taxable percentage on the LTCG and STCG at a preferential level.

 CBDT Treatment on Long term/Short term Equity Losses

In times of loss on equity investments, the CBDT looks at the matter with a different view @ both profiles.

In case of long-term loss, say, after completion of 1 year, the losses incurred on the capital must be met by investors only.

The CBDT shall not write off losses against any form in the years ahead. For instance, an investor buys a stock for INR 1,000,00.00 and sells it for INR 80,000.00 then the loss incurred is INR 20,000.00. In no manner, CBDT shall shield the investor’s loss.

Short Term Losses:

Another instance is wherein an investor who does investment may want to back out from the equity.

More importantly, when an investor is making a loss in the short run, the CBDT cushions the investor in the following manner.

Irrespective of the value of investment made, the CBDT can write off losses against the short-term gains.

In the second method, the investor can carry forward the incurred loss for a period of 8 financial years.