Differences Between Long Term & Short Term Capital Gains
Capital gain is the profit you gain from selling or transferring a capital asset, such as jewellery, property, shares, etc. Securities that come under the rules of the SEBI Act of 1992 are known as capital assets in India.
Typically, these assets constitute short-term and long-term investments.
Keep reading to know the key differences between long term and short term capital gains.
List of Differences Between Short Term and Long Term Capital Gains
Take a look at the following comparison between short term and long term capital gains:
Basis of Comparison
Short Term Capital Gain
Long Term Capital Gain
Profit gained from the sale of short term capital assets is short term capital gain.
Long term capital gain arises from the sale of long term capital assets.
Status of the capital asset
Short-term assets are immovable items held for less than 2 years and movable ones below 3 years.
Long-term capital assets are immovable items that investors hold for more than 2 years and movable items over 3 years.
Traders have a short-term market perspective and can sell over shorter periods, attaining quicker profit.
Investors maintain a long-term market perspective, which brings them higher profits on selling their assets.
Sellers may obtain lower profits because of the short holding period and assets are not well-established in the market.
Sellers anticipate higher profit since the assets’ holding period is over a year and they are well-established in the market.
It involves lower risks as the holding period is relatively shorter.
Investing in long-term assets involves higher risk because of the lengthy waiting period, the assets may become non-liquid later.
15% tax is applicable on short term capital gains that fall under section 111, excluding surcharge and cess. STCGs that do not fall under section 111A are taxable at a regular income tax rate.
20% tax is applicable on long term capital gains, excluding cess and surcharge. Eligible taxpayers can bring it down to 10% against meeting specific criteria which must apply for securities listed on a stock market or mutual fund.
Both short and long term capital gains are taxable as these are leading means of income. However, the Income Tax act defines the applicable exemptions for individuals.
Meanwhile, the table above sums up all the differences between long term and short term capital gains. The primary difference is in the holding period, profit and risk among these two capital gains.