Capital Gains – Meaning & Classification (STCG vs LTCG)
Sold shares after 11 months - short-term or long-term? Gold after 3 years - which category? Classification determines tax rate: 15% vs 20% vs 30%! Let's master the holding period rules.
What are Capital Gains?
Profit from sale of capital asset
Formula:
Capital Gain = Sale Price - Cost of Acquisition - Expenses
Example:
- Bought shares: ₹5 lakh (2020)
- Sold shares: ₹8 lakh (2024)
- Capital Gain: ₹3 lakh
Head of Income: Capital Gains (separate from salary, house property, business)
Two Types: STCG vs LTCG
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Key Difference: Duration of holding (time between purchase and sale)
Holding Period Criteria
Threshold varies by asset type!
| Asset Type | STCG (Short-Term) | LTCG (Long-Term) |
|---|---|---|
| Listed Equity Shares | ≤ 12 months | > 12 months |
| Equity Mutual Funds | ≤ 12 months | > 12 months |
| Unlisted Shares | ≤ 24 months | > 24 months |
| Property (Land/Building) | ≤ 24 months | > 24 months |
| Gold, Jewellery | ≤ 24 months | > 24 months |
| Debt Mutual Funds | ≤ 36 months | > 36 months |
| Other Assets | ≤ 36 months | > 36 months |
Remember: Listed equity = 12 months, Most others = 24 months, Debt funds = 36 months
Listed Equity Shares & Equity MF
Holding Period: > 12 months for LTCG
Examples:
Example 1 - Listed Equity (Reliance shares):
- Bought: Jan 1, 2024
- Sold: Dec 31, 2024 (held 12 months)
- Classification: STCG (not more than 12!)
Example 2:
- Bought: Jan 1, 2024
- Sold: Jan 2, 2025 (held 12 months + 1 day)
- Classification: LTCG ✅
Equity Mutual Funds (>65% equity):
- SBI Bluechip Fund held 13 months → LTCG
- HDFC Equity Fund held 10 months → STCG
Unlisted Shares
Holding Period: > 24 months for LTCG
Unlisted = Not traded on stock exchange (private companies)
Example:
Startup shares (not listed):
- Bought: March 2022
- Sold: March 2024 (exactly 24 months)
- Classification: STCG (not more than 24)
Sold: April 2024 (24 months + 1 day):
- Classification: LTCG ✅
Property (Land & Building)
Holding Period: > 24 months for LTCG
Includes:
- Residential flat
- Commercial building
- Agricultural land (urban area)
- Vacant land plots
Example:
Mumbai flat:
- Bought: January 2022
- Sold: December 2023 (23 months)
- STCG (taxed at slab rates!)
Sold: February 2024 (25 months):
- LTCG (20% with indexation) ✅
Gold, Jewellery & Precious Metals
Holding Period: > 24 months for LTCG
Example:
Gold bars:
- Bought: June 2021
- Sold: May 2023 (23 months)
- STCG (slab rates, up to 30%!)
Sold: July 2023 (25 months):
- LTCG (20% + indexation benefit) ✅
Debt Mutual Funds & Bonds
Holding Period: > 36 months (3 years) for LTCG
Debt funds = FD-like mutual funds (< 35% equity)
Example:
HDFC Liquid Fund:
- Bought: Jan 2021
- Sold: Dec 2023 (35 months)
- STCG (slab rates)
Sold: Feb 2024 (37 months):
- LTCG (20% with indexation) ✅
Note: Post-2023 budget changes, debt funds may have different treatment - check latest rules!
Tax Rates - STCG vs LTCG
STCG Tax Rates:
| Asset | STCG Tax Rate |
|---|---|
| Listed Equity (STT paid) | 15% (Section 111A) |
| Other Assets (property, gold, unlisted) | Slab rates (up to 30%) |
LTCG Tax Rates:
| Asset | LTCG Tax Rate |
|---|---|
| Listed Equity (>₹1L gain, STT paid) | 10% (without indexation) |
| Listed Equity (≤₹1L) | Exempt (Section 112A) |
| Property, Gold, Unlisted | 20% (with indexation benefit) |
Complete Examples
Example 1: Listed Equity Shares (Infosys)
Purchased: ₹10,00,000 (March 2023) Sold: ₹15,00,000 (May 2024) - 14 months holding
Classification: LTCG (> 12 months) Gain: ₹5,00,000
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Example 2: Property Sale (Flat)
Purchased: ₹50,00,000 (Jan 2021) Sold: ₹80,00,000 (March 2023) - 26 months
Classification: LTCG (> 24 months)
With indexation (cost adjusted for inflation):
- Indexed cost: ₹50L × (348/301) = ₹57,80,730
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If STCG (sold in 20 months at 30% bracket): Tax = ₹30L gain × 30% = ₹9 lakh! (Double!)
Holding Period Calculation
Start date: Date of acquisition (purchase/allotment)
End date: Date of transfer (sale/gift)
Exclude: Start date
Include: End date
Example:
Bought: January 15, 2023 Sold: January 15, 2024
Holding: 12 months exactly (Jan 15, 2023 to Jan 15, 2024)
For equity: STCG (need > 12 months, not just 12!)
Sold: January 16, 2024: LTCG ✅ (12 months + 1 day)
Special Cases
Case 1: Bonus Shares
Holding period: From original purchase date (not bonus date)
Example:
- Original shares: Bought Jan 2022
- Bonus shares: Received Jan 2024
- Sold: Dec 2024
Original shares: Held 35 months → LTCG Bonus shares: Deemed held from Jan 2022 (35 months) → LTCG
Case 2: Rights Shares
Holding period: From rights subscription date (new purchase)
Example:
- Original: Jan 2022
- Rights subscribed: Jan 2024
- Sold: Aug 2024
Original: 31 months → LTCG Rights: 7 months → STCG
Case 3: Inherited Property
Holding period: From previous owner's purchase date
Example:
- Father bought: Jan 2020
- You inherited: Jan 2023
- You sold: March 2024
Your holding: From Jan 2020 (50+ months) → LTCG ✅
Summary Table - Quick Reference
| Asset | STCG Threshold | STCG Tax | LTCG Threshold | LTCG Tax |
|---|---|---|---|---|
| Listed Equity | ≤ 12 months | 15% | > 12 months | 10% (>₹1L) |
| Unlisted Shares | ≤ 24 months | Slab | > 24 months | 20% + indexation |
| Property | ≤ 24 months | Slab | > 24 months | 20% + indexation |
| Gold | ≤ 24 months | Slab | > 24 months | 20% + indexation |
| Debt MF | ≤ 36 months | Slab | > 36 months | 20% + indexation |
Summary
- Capital gains: Profit from sale of capital asset (shares, property, gold, etc.)
- STCG vs LTCG: Determined by holding period (time between purchase and sale)
- Listed equity/Equity MF: > 12 months = LTCG, ≤ 12 months = STCG
- Property/Gold/Unlisted shares: > 24 months = LTCG, ≤ 24 months = STCG
- Debt MF: > 36 months = LTCG, ≤ 36 months = STCG
- STCG tax: Equity 15% (Section 111A), others at slab rates (up to 30%)
- LTCG tax: Equity 10% (>₹1L), others 20% with indexation benefit
- Holding period: Exclude start date, include end date (must be MORE than threshold, not equal!)
- Indexation: Adjusts cost for inflation (only LTCG on property/gold/unlisted, not equity)
Quiz Time! 🎯
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