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What is short term investment and capital gain?

I want to know how much term is short term and what is meant by capital gain tax. How much is capital gain tax? 3 years ago

  • Knowledge Junction:Answered in 121 mins

    Short-term investment is an investment period of less than 1 yr for equities (stocks or equity Mutual Funds). Similarly, for real-estate it is a period of less than 3 yr.

    So, if you buy a stock with worth Rs 100000 and exactly 11 months later  you see that the price has appreciated to Rs 120000 and sell it off. Your gains is Rs 20000. Tax-rate on short-term gains for equities is 15%. i.e You are liable to pay 20000 X 0.15 = Rs 3000 of Tax. Your after-tax profit is only Rs 17000. 

    On the other hand if you wait for 12 months before selling-off and then sell your equity, it is a long-term capital gain and the tax on long-term equity investment is 0%. Thus, your after-tax profit is Rs 20000.

    Similarly, for real-estate the period defined as short-term is less than 3 years. So, if you buy a residential property for Rs 25 lakhs and sell it after 25 months for Rs 35 lakhs. Your gains are Rs 10 lakhs. If your tax-slab is 30%, then you are liable to pay Rs 3 lakhs as tax. Your after-tax profit is only Rs 7 lakhs.

    Tax is levied on real-esate for long-term gains also unlike equities. However, they are effectively lesser than short-term capital gains tax.   

    The above is a bird-eye view of short-term capital gains tax. To understand the nitty-grities please consult a qualified Chartered Accountant, Tax Consultant or a Financial Planner.

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