InvestorQ : How is the classification of STCG and LTCG done in case of equities?
Ria Roy made post

How is the classification of STCG and LTCG done in case of equities?

Mahil Khan answered.
2 years ago

Central Board of Direct Taxes (CBDT) has given a slightly more favourable treatment of the time frame with respect to equities. The idea is to get more retail investors into the long term wealth creation through the equity and the equity mutual funds route. For all the asset classes, LTCG is classified as a minimum holding period of 36 months (3 years). This definition applies to asset classes like land, apartments, gold, debt mutual funds, bonds etc. However, in case of equities, there is a special treatment that is accorded with respect to the definition of LTCG and STCG. Unlike other asset classes, the definition of LTCG is when the equity is held for a period of more than 12 months (1 year). In case equities are sold in less than 12 months then it will be classified as STCG.

There is a normal doubt in case of dematerialized shares. Should the purchase date be taken as the date of purchase in physical form or the date of transfer to demat? The date of purchase in physical will be considered because the capital gains tax calculation does not differentiate between whether you buy in demat mode or in non-demat mode. The definition of equity is quite wide in this case and includes primary market IPOs, secondary market equities and equity mutual funds. In addition, this preferential LTCG treatment is also available to hybrid funds like Balanced Funds and Arbitrage Funds where more than 65% of the holding is in equities.