A person, whether an Indian or NRI needs to pay different taxes to the government on one’s earnings, profits and losses. There is a provision to pay tax on selling or buying of property. Such taxes are called Capital Gains Tax. Capital Gains refers to profit or gain which is earned by an individual by selling any capital asset. The profit generated is taxed as per the rules of the Income Tax Department.
Capital Gains Tax or CGT is not applicable to the inherited property or when there is a transfer of ownership of property but no sale. Any such property which is gifted by an individual is exempted from tax as per the Online Income Tax Act, 1961. CGT will be taxed if the individual who inherited the property sells it. There are two types of Capital Gains Tax available. They are short term capital gains and long term capital gains. In this article, we will discuss short term capital gains.
What are Short-Term Capital Gains?
If an asset is in possession for a span of less than or equal to 36 months, then that asset is termed as a Short term capital asset. For immovable assets like house property, building and land, the span is reduced to 24 months instead of 36 months from the financial year 2017-18. For example, if the NRI sells their house property after a span of 30 months, it will be considered as long term capital gains. Further, stocks which are held for one year or less are considered as short term capital gains. This gain gets taxed under ordinary income.What is Considered in Short Term Capital Gains?
The natural question that comes to one’s mind is what are short term gains that are included/excluded in short term capital gains. Below mentioned assets are considered as short term capital assets:-- Any property that is in possession of the assessee. It may not be mandatory for the property to be connected to their profession or business.
- Any security which is in possession of Federated Investors while adhering to the rules in the SEBI Act of 1992.
- Items like jewellery, sculptures, artworks, sculptures, etc. are considered
- Stocks which are traded except those mentioned above. It also includes consumable stores and raw materials for the purpose of business or profession.
- Personal things inherited by the NRI like movable property which is in possession by the asset owners or their immediate family. But it doesn’t include jewellery, sculptures, artworks and sculptures.
- Agricultural land with some exceptions.
How much is Short Term Capital Gains Tax?
The short term capital gains tax is charged as per the following:-- When STT (Security Transaction Tax) is applicable then it is 15%.
- When STT (Security Transaction Tax) is not applicable, then it is included in the income tax returns and after adding the capital gains, the tax slab is calculated accordingly.
- For debt funds – the gain is included in income tax returns and the tax slab is calculated accordingly.
- For equity funds – it is taxed at 15%
How are Short Term Capital Gains Calculated?
For calculating short term capital gains on property, one must follow the procedure mention below:-- The NRI needs to include the full value of the asset
- Deduct the below-mentioned details, if any
- Expenditures on renovation or improvement of the property
- Expenses incurred when the property was acquired
- Any other expenditures on the transfer of property
- The amount calculated after deduction of the expenditures is short term capital gain.
- Calculate the profit generated by selling these assets
- Deduct the cost on maintenance cost
- The amount calculated after deduction of the expenditures is short term capital gain.
- Calculate the profit from equity/debt funds
- For debt funds, the profit is included in income tax. For equity funds, 15% is charged on profit.
Graph Showing The Minimum Holding Period For Short Term Capital Gains
As we can see from the graph, the following is the holding period for short term capital gains from:-- Stocks, Equity, Mutual Funds and Listed Tax-free bonds holding period is 1 year
- Unlisted shares and House Property is 2 years
- Debt funds, Sovereign gold bonds, Physical gold, funds and ETFs holding period is 3 years.
Short Term Capital Gains FAQ's:
The formula to calculate short term capital gains tax is to consider the full value minus the expenditures that are incurred in the transfer of assets minus any cost for acquiring or improving the asset.
Yes, an NRI needs to pay taxes on short term capital gains. It is included in their income tax returns.
No, indexation benefit is applicable to only long term capital assets and not for short term capital assets.
For determining short term capital gains, it is classified into two categories:-
- Short term capital gains which covered under Section 111A of Income Tax Act.
- Short term capital gains except those which are not covered under Section 111A of Income Tax Act.
Yes, one can show losses under short term capital gains. But one must show losses by submitting appropriate proofs and it can be adjusted only under capital gains not under income tax.
Yes, equity based mutual funds are taxed under short term capital gains.
The charges deducted are:-
- Brokerage or commission charged by the broker
- Cost of stamp paper
- Travelling expenses related to transfer of property
- Cost of executor and other such expenses.
