Short-term capital gains arise when you sell an asset before it qualifies as long-term. Under current rules, that means holding it for 12 months or less for listed equity shares, equity-oriented mutual funds and other listed securities, and 24 months or less for most other assets.
Why it matters
Short-term gains are generally taxed at higher rates than long-term ones, so frequent buying and selling can carry a meaningful tax cost on top of exit loads and transaction costs.
How to read it
Under current rules, for transfers on or after 23 July 2024:
- Listed equity shares and equity-oriented funds on which securities transaction tax applies: short-term gains are taxed at 20%, plus applicable surcharge and cess.
- Most other assets, including listed bonds held for 12 months or less: gains are added to your income and taxed at your slab rate.
- Debt mutual funds bought on or after 1 April 2023 and unlisted bonds: gains are taxed at slab rates whatever the holding period.
Common misconceptions
- “Short-term gains are always taxed at slab rates.” Equity-oriented holdings have a flat special rate.
- “Losses are wasted.” Short-term capital losses can generally be set off against both short- and long-term gains, and unused losses carried forward for a limited number of years if you file on time.
- “All my SIP units become long-term together.” Each instalment has its own holding period.
In India: The Union Budget presented on 1 February 2026 left the 20% equity STCG rate unchanged. Tax law changes regularly; consult a tax professional before acting.
Formula
STCG = Sale value − Cost of acquisition − Transfer expenses (for an asset held up to the short-term threshold)
Worked example
For illustration, assume you redeem equity fund units 8 months after buying them, with a gain of ₹40,000. Under current rules, tax = 20% × ₹40,000 = ₹8,000, plus cess. The same gain after 13 months would be long-term and, if within the yearly ₹1.25 lakh exemption, not taxed.
Figures are for illustration only — not a forecast or a recommendation.
Related terms
Capital gains
The profit made when you sell or redeem an investment for more than it cost; taxed as short- or long-term depending on how long you held it.
LTCG
Long-Term Capital Gains
Gains on assets held longer than a set period; for listed shares and equity-oriented funds, that currently means more than 12 months.
Exit load
A fee some mutual fund schemes charge if you redeem units within a specified period, deducted from the redemption amount.
TDS
Tax Deducted at Source
Tax withheld by the payer — an employer, bank or fund house — before paying you, and credited against your final tax for the year.
Equity
Ownership in a company through its shares; equity investors share in the company’s growth and profits, and bear the risk of losses.