When you invest in assets like stocks, mutual funds, or property, the profit you make upon selling them is called a capital gain. This gain is considered income and is subject to tax. The tax treatment, however, depends on how long you held the asset before selling it. For investors who engage in frequent trading or have a shorter investment horizon, it is crucial to understand STCG tax. So, what is a Short Term Capital Gain (STCG) Tax explained in simple terms? It is the tax you pay on the profits earned from selling a capital asset that you have held for a short period. For 2026, the rules for STCG tax are well-defined and differ significantly based on the type of asset you have sold.
What is a Short Term Capital Gain (STCG)?
A Short Term Capital Gain (STCG) is the profit that arises from the sale or transfer of a capital asset that has been held for less than a specified period. This ‘holding period’ is the key differentiator between short-term and long-term gains. The duration of this holding period varies for different asset classes.
- For listed equity shares and equity-oriented mutual funds: The holding period is considered short-term if it is 12 months or less.
- For debt mutual funds, property, and unlisted shares: The holding period is considered short-term if it is 36 months or less. (Note: For immovable property and unlisted shares, this was reduced to 24 months).
If you hold the asset for a period longer than mentioned above, the profit is classified as a Long Term Capital Gain (LTCG), which is taxed under a different set of rules.
How is STCG Tax Calculated? The Tax Rates
The calculation of STCG tax is not uniform across all assets. The tax rate depends on the nature of the asset and whether Securities Transaction Tax (STT) was paid on the sale. For the financial year 2025-26, there are two main categories.
1. STCG on Equity Shares and Equity Mutual Funds (Section 111A)
This category applies to the sale of listed equity shares on a stock exchange or units of an equity-oriented mutual fund, where STT has been paid on the transaction.
- Tax Rate: A flat rate of 15% is levied on the gain.
- No Basic Exemption Benefit: While the gain is taxed at a special rate, you cannot adjust it against the basic exemption limit if you have other taxable income. However, if your total income excluding the STCG is below the basic exemption limit, you can use the shortfall to reduce your taxable STCG.
2. STCG on Other Assets (Non-Section 111A)
This category includes gains from assets where STT is not applicable. This includes:
- Sale of debt mutual funds.
- Sale of property, gold, or unlisted shares held for the short term.
- STCG from equity shares sold in an off-market transaction (where STT is not paid).
- Tax Rate: The gain is added to your total income for the year and is taxed at your applicable income tax slab rate. For example, if you are in the 30% tax bracket, your STCG from a debt fund will also be taxed at 30%.
STCG Tax Explained: A Calculation Example
Let’s understand the calculation with a couple of examples.
Example 1: STCG on Shares (Section 111A)
Ms. Priya, aged 45, has a salary income of ₹8,00,000. During the year, she sold some shares.
- Sale Price: ₹2,00,000
- Purchase Price: ₹1,50,000
- Holding Period: 8 months (This is short-term)
- Brokerage/Expenses: ₹1,000
Calculation:
| Particulars | Amount |
|---|---|
| Sale Price | ₹2,00,000 |
| Less: Purchase Price | (₹1,50,000) |
| Less: Expenses | (₹1,000) |
| Short Term Capital Gain (STCG) | ₹49,000 |
| Tax on STCG @ 15% (under Sec 111A) | ₹7,350 |
Ms. Priya will pay tax on her salary income as per her slab rate, and an additional tax of ₹7,350 (plus cess) on her short-term capital gain.
Example 2: STCG on Debt Mutual Funds
Mr. Kumar, aged 50, has a business income of ₹12,00,000. He sold some units of a debt fund.
- Sale Price: ₹1,20,000
- Purchase Price: ₹1,00,000
- Holding Period: 15 months (This is short-term for debt funds)
Calculation:
- STCG = ₹1,20,000 – ₹1,00,000 = ₹20,000
- This ₹20,000 will be added to his business income.
- Total Income = ₹12,00,000 + ₹20,000 = ₹12,20,000
- The total income of ₹12,20,000 will be taxed at his applicable slab rate.
Set-off and Carry Forward of Short Term Capital Loss (STCL)
If you incur a loss instead of a gain from a short-term asset sale, the tax laws allow you to set it off against gains.
- Set-off: A Short Term Capital Loss (STCL) can be set off against both Short Term Capital Gains (STCG) and Long Term Capital Gains (LTCG) in the same financial year.
- Carry Forward: If you are not able to set off the entire loss in the same year, you can carry forward the remaining STCL for up to 8 assessment years. In the subsequent years, this carried-forward loss can only be set off against STCG or LTCG.
It is important to file your ITR within the due date to be eligible to carry forward these losses. When investing in mutual funds, it’s essential to track your investments using your unique Folio Number to calculate these gains and losses accurately.
Frequently Asked Questions (FAQs)
1. What is the tax rate on STCG from stocks for the financial year 2025-26?
The tax rate on Short Term Capital Gains from the sale of listed equity shares (where STT is paid) is a flat 15% under Section 111A of the Income Tax Act.
2. Is indexation benefit available for calculating STCG?
No, the benefit of indexation is not available for calculating short-term capital gains, regardless of the asset type. Indexation is a feature that applies only to long-term capital assets (and not on listed equities).
3. Can I set off a Short Term Capital Loss against my salary income?
No, a capital loss (both short-term and long-term) cannot be set off against any other head of income like salary, business income, or interest income. A short-term capital loss can only be set off against short-term or long-term capital gains.
4. Do I have to pay Securities Transaction Tax (STT) on all STCG?
No, STT is only applicable on transactions that take place on a recognized stock exchange in India. So, you pay STT when you sell listed shares or equity mutual fund units. For other assets like debt funds or property, STT is not applicable.
5. Is the 15% tax on STCG inclusive of cess?
No, the 15% is the base tax rate. You will have to pay an additional Health and Education Cess, which is currently 4%, on top of this tax. So, the effective tax rate would be 15.6%.