Ask any new-age investor about investment options and they are likely to share a long list of potential avenues. Be it individual stocks, mutual funds or other assets, investments allow you to make potential gains over time. Whenever an investor redeems or sells these investment products at a value higher than the purchase price, the profit earned is called capital gain. Depending on how long the investment is held, capital gains are classified as short-term or long-term.
In this article, we will understand short-term capital gains, how they are calculated, how taxation works as per prevailing regulations and what steps investors may consider to manage their tax impact in a compliant manner.
What is Short-Term Capital Gains (STCG)
Short-term capital gains (STCG) refer to profits earned from selling assets within a defined short holding period. The key factor that determines whether a gain is short-term is how long the asset was held before being sold.
For financial assets like equities, this period is usually less than 12 months. So, if shares are sold within a year of purchase, the gains are treated as short-term.
STCG on equities and certain financial assets is generally taxed at 20% without the benefit of indexation. In contrast, for most other assets, short-term gains are taxed according to the individual’s applicable income tax slab, based on their total income and the holding period.
How to Calculate STCG
-
Identify the Sale Value: Note the total amount received from selling the asset (full value consideration).
-
Check the Purchase Cost: Determine the original price at which the asset was bought (cost of acquisition).
-
Add Improvement Costs: Include any money spent on upgrading or improving the asset over time.
-
Compute Short-Term Capital Gains (STCG): Subtract the purchase cost, improvement expenses, and any transfer-related charges from the sale value. The remaining amount is your short-term capital gain.
Taxation of STCG
Key Tax Rates & Rules
Listed Domestic Equity Shares
-
STCG is taxed at 20%
-
Applies when shares are sold within 12 months of purchase.
Unlisted Domestic Equity Shares
-
STCG is taxed as per the investor’s income tax slab rate.
-
STCG is taxed at 20%.
-
Applicable when units are held for 12 months or less.
-
As per Budget 2023, investments made after April 1, 2023: Gains are taxed as per the investor’s income tax slab.
-
For investments made before April 1, 2023: STCG is also taxed as per the income tax slab rate (but overall tax treatment differs for LTCG).
Fixed Income Investments (Bonds, Debentures, etc.)
-
Includes listed and unlisted instruments such as government securities, corporate bonds, debentures, tax-free bonds
-
STCG applies if held for less than 12 months.
-
Taxed as per the investor’s income tax slab rate.
Gold Investments
-
Covers physical gold (jewellery, coins, bars), digital gold, gold ETFs , gold mutual funds, and sovereign gold bonds (SGBs)
-
STCG applies if held for less than 24 months.
-
Taxed as per the income tax slab rate of the investor.
Special Rule for Sovereign Gold Bonds (SGBs):
-
Tax-free on maturity.
-
For redemptions from April 1, 2026, the exemption is restricted to SGBs subscribed to at original issue and held continuously until redemption on maturity.
-
If sold before maturity, STCG is taxed as per slab rate (same as other gold investments).
Real Estate Investments
-
Applies to immovable property.
-
STCG applicable if held for less than 24 months.
-
Taxed as per the investor’s income tax slab rate.
How to Report STCG in ITR
-
Download Required Documents: Collect your capital gains statement from your broker or mutual fund house. Also, check your Annual Information Statement (AIS) on the income tax portal to ensure both records match, since the tax department already has your transaction details.
-
Log In & Select the Correct Form: Sign in to the income tax e-filing portal using your PAN and choose ITR-2 for Assessment Year 2026–27. Taxpayers having business or professional income may file ITR-3.
-
Fill in Schedule CG: Enter your capital gains details by separating short-term and long-term gains, including stock name, purchase cost, sale value, and quantity.
-
Adjust Losses (Set-Off): Short-term capital losses can be adjusted against both short-term and long-term gains. Long-term capital losses can be adjusted only against long-term gains.
-
Pay Tax & Verify Return: Pay any pending self-assessment tax, submit your return, and complete e-verification using Aadhaar OTP, net banking, EVC, ATM, and DSC. within 30 days.
How to Avoid STCG
Think long term
Holding investments for a longer period may help you benefit from lower tax rates, but investors should not retain an unsuitable investment solely for tax reasons.
Track holding period
Before selling, check how long you’ve held the asset. Waiting a little longer (if feasible) can help you qualify for long-term capital gains treatment.
Use tax-loss harvesting:
-
You can reduce your tax liability by offsetting gains with losses.
-
Selling loss-making investments helps lower your overall taxable gains.
-
For example, a gain of Rs. 1 lakh can be offset by Rs. 60,000 loss, lowering taxable gains to Rs. 40,000.
Maintain portfolio balance
After selling a loss-making asset, you can reinvest in a similar security to keep your asset allocation intact.
Conclusion
Short-term capital gains in mutual funds are an important aspect that investors may consider while planning their investments. These gains arise when mutual fund units are sold within a relatively short duration, and they are taxed differently based on the type of fund.
Disclaimer: The information stated herein is based on UTI Mutual Fund’s understanding of the tax laws [Income Tax Act 2025 as amended by Finance Act, 2026] and is only for the purpose of providing general information to the investors of the UTI Mutual Fund Schemes and is not exhaustive and investors are advised to read and understand the scheme related documents carefully. UTI Mutual Fund, UTIAMC, UTI Trustee Company Pvt. Ltd. shall not be responsible in any manner whatsoever including for any information given herein. The investors should not treat the contents herein as advice relating to legal, taxation, investment or any other matter and are advised to consult its/his or her own tax/legal consultant with respect to the tax implications arising out of his or her or their participation in the Schemes.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.