Differences Between Long Term Capital Gain & Short Term Capital Gain
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 |
| Definition | 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 | Any capital asset held for a period of not more than 36 months before transfer shall be treated as a short-term capital asset. However, unlisted shares or land and buildings held for a period less than 24 months before transfer are also considered short-term capital assets. Additionally, listed securities, zero coupon bonds, and equity-oriented mutual funds need to be held for a period of less than 12 months to be classified as short-term capital assets | Any capital asset held for a period of more than 36 months before transfer shall be treated as a long-term capital asset. However, unlisted shares or land and buildings held for a period exceeding 24 months before transfer are also classified as long-term capital assets. Additionally, listed securities, zero coupon bonds, and equity-oriented mutual funds must be held for a period exceeding 12 months to be considered as long-term capital assets. |
| Market aspect | 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. |
| Profit attained | 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. |
| Risk involvement | 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. |
| Taxability | 15% tax is applicable on short term capital gains that fall under section 111A, 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.
Frequently Asked Questions
Are capital gains taxable in India?
Being one of the heads of earning, capital gains, both short and long-term, are taxable in India.
What is the difference between the holding period of financial assets in STCG and LTCG?
The holding period of financial assets is less than 1 or 2 or 3 years in case of short-term capital gain. On the other hand, it is over 1 or 2 or 3 years in case of long-term capital gains.