Short-Term Capital Gains Tax Explained

Any listed share or equity-oriented mutual fund unit sold within 12 months of purchase generates a Short-Term Capital Gain under Section 111A. Unlike many other tax provisions, there's no partial benefit for getting close to the 12-month mark — a sale on day 364 is taxed identically to a sale on day 1.

STCG on listed equity is taxed at a flat 20%, regardless of your income tax slab. This rate was raised from 15% effective 23 July 2024, alongside the broader revision of capital gains rules that year, and applies uniformly whether your total taxable income is ₹3 lakh or ₹30 lakh.

This is the single biggest difference from LTCG. There's no ₹1.25 lakh (or any) exemption for short-term gains. If your STCG for the year is ₹20,000, all ₹20,000 is taxable at 20%. If it's ₹20 lakh, the same flat rate applies to the entire amount.

You buy shares in April and sell them in October the same year, seven months later, booking a profit of ₹60,000. The entire ₹60,000 is short-term and taxed at 20%, working out to ₹12,000 before cess — regardless of what else is happening in your broader tax return.

Beyond brokerage and STT, the tax drag on short-term trading is real and often underestimated. A strategy that generates frequent short-term gains needs to clear a materially higher bar — accounting for the 20% flat tax with no exemption — to match the after-tax return of a comparable long-term holding taxed at 12.5% with an exemption buffer.

If you do incur short-term capital losses, they can be set off against both STCG and LTCG in the same year, and carried forward for up to 8 assessment years if unused. This makes accurate, consistent record-keeping of every short-term trade — wins and losses alike — genuinely worthwhile, not just a compliance formality.

Short-term trading isn't inherently wrong — for traders with a genuine edge and process, it's a legitimate strategy. But for most long-term wealth builders, understanding the tax cost of frequent buying and selling is reason enough to let a well-researched position run. Powered by Mahir Research, investors can revisit the fundamentals behind a holding periodically instead of reacting to short-term price noise, aligning both conviction and tax efficiency in the same decision.