When you sell an asset like equity shares or mutual funds at a price higher than what you paid for them, the profit is called Capital Gain.
The “Short Term” tag is applied based on the holding period. For listed equity shares in India, if you sell your holdings within 12 months (1 year) of purchase, the profit is classified as Short Term Capital Gain.
Why the 12-Month Rule Matters
- Listed Shares/Equity MFs: Holding period $\leq$ 12 months.
- Unlisted Shares: Holding period $\leq$ 24 months.
- Tax Rate: Currently a flat 20% for listed equities (Section 111A).
Latest STCG Tax Rates for 2025-2026
Following the major overhaul in Budget 2024, the tax rate for STCG on listed equity shares and equity-oriented mutual funds was hiked. This rate remains stable as of the February 2026 budget announcements.
| Asset Type | Holding Period | Tax Rate (STCG) |
| Listed Equity Shares (STT Paid) | Up to 12 Months | 20% |
| Equity Oriented Mutual Funds | Up to 12 Months | 20% |
| Unlisted Equity Shares | Up to 24 Months | Taxed at your Income Slab |
| Debt Mutual Funds | Always STCG | Taxed at your Income Slab |
Note: The 20% rate is applicable only if Securities Transaction Tax (STT) has been paid on the transaction. Most trades on NSE and BSE automatically include STT.
How to Calculate Your STCG Tax
Calculating your tax liability isn’t as complex as it seems. You simply need to find your net profit and apply the flat rate. Unlike Long Term Capital Gains (LTCG), there is no indexation benefit for short-term gains.
The Formula:
$$STCG = \text{Full Sale Value} – (\text{Purchase Price} + \text{Transfer Expenses})$$
Real-World Example:
Imagine you bought 100 shares of a company at ₹500 each in August 2025. You sold them in December 2025 at ₹700 each.
- Sale Value: ₹70,000
- Purchase Price: ₹50,000
- Brokerage/Expenses: ₹500
- Net Profit (STCG): ₹19,500
- Tax Payable (20%): ₹3,900 (plus 4% Cess)
Important Rules: Set-off and Carry Forward
One of the “silver linings” of the tax code is the ability to offset your losses against your gains.
- Set-off: You can set off a Short Term Capital Loss (STCL) against both Short Term Capital Gains and Long Term Capital Gains.
- Carry Forward: If your losses exceed your gains in a particular year, you can carry forward those losses for up to 8 assessment years to offset future profits.
- Filing Requirement: To carry forward losses, you must file your Income Tax Return (ITR) before the due date.
Frequently Asked Questions (FAQs)
1. Is there a basic exemption limit for STCG?
Yes. If your total taxable income (including STCG) is below the basic exemption limit (e.g., ₹4 Lakh under the New Tax Regime in 2026), you might not have to pay tax. However, once you cross that threshold, the 20% flat rate applies to the gains.
2. Does the 20% tax include Surcharge and Cess?
The base rate is 20%. A 4% Health and Education Cess is added to the tax amount. Surcharge is only applicable if your total income exceeds ₹50 Lakh.
3. What happens if I sell my shares after 13 months?
It becomes Long Term Capital Gain (LTCG). For listed shares, LTCG is taxed at 12.5% for gains exceeding ₹1.25 Lakh in a financial year.
4. Can I save STCG tax by investing in Section 80C?
No. You cannot claim deductions under Section 80C (like LIC, PPF) against Short Term Capital Gains taxable under Section 111A.
Conclusion
The hike from 15% to 20% for STCG reflects the government’s push towards encouraging long-term investing over high-frequency trading. While the higher tax rate might seem discouraging for swing traders, the robust performance of the Indian markets continues to offer growth opportunities that often outweigh the tax burden.
Always ensure you keep a detailed log of your “Buy” and “Sell” dates to accurately report your holdings in ITR-2 or ITR-3.