InvestorQ : Can you explain how exactly the short term capital gains tax is calculated?
Rutuja Nigam made post

Can you explain how exactly the short term capital gains tax is calculated?

Arti Chavan answered.
2 years ago

To understand how capital gains are taxed in case of STCG, there are some basic steps that you need to be familiar with.

The first step towards understanding capitals gains tax is about knowing how to calculate the gains from shares.

The STCG is arrived at by deducting from the selling price, the cost of acquisition, cost of improvement and cost of transfer. In case of equity shares, there is nothing like cost of cost of improvement, but any incidental costs like brokerage, statutory charges, relevant bank charges etc can be adjusted against the capital gains. However, the interest on loan taken to trade in the markets cannot be considered as a cost since the extant rules do not allow investing based on borrowed money. That is not permissible. The same rule applies to calculation of LTCG on equities also, except that it is held for a period of more than 1 year.

There is a 15% tax on short-term capital gains that fall under the section 111A of Income Tax Act i.e. equity shares which are listed on the stock exchange. STCG other than that covered under section 111A is charged to tax according to the slab rates which is determined based on total taxable income. Shares which are not listed on a recognised stock exchange and preference shares are some examples of STCG listed under section 111A. To qualify for concessional rate of STCG on equities it is essential that the stock is listed on a recognized stock exchange and also that the investor has paid the STT on the buy leg of the transaction.