InvestorQ : What is the idea behind STCG and LTCG classification?
Ria Roy made post

What is the idea behind STCG and LTCG classification?

Mahil Khan answered.
2 years ago

The whole idea of this classification is to encourage investors and individuals to take a long term approach to assets rather than try and trade in them. That is why tax on LTCG on all classes of assets is lower than the tax on STCG on a similar class. Also, most exemptions are also limited to LTCG gains and not to STCG gains. Among the various incomes that are reported when you file your income tax returns, capital gains is one of the key components. Intuitively, while long term capital gains (LTCG) refers to a longer holding perspective, at the shorter end is short term capital gains (STCG). Obviously, the government wants to encourage a longer term perspective among investors with respect to all asset classes. That is why LTCG always tends to get a more favourable tax treatment with respect to STCG. This is true of equity and all other classes too. The tenure definition of long term and short term and the rates applicable are different for different classes of assets.