Which is the better for tax-saving: LTCG and STCG?

Generally, LTCG is better for tax-saving, as it has lower tax rates when compared to STCG. However, the ultimate type of investment that you make depends upon your preferences and choices.

Can I directly convert LTCG into STCG?

No, LTCG cannot be converted into STCG. The classification of capital gains depends on the holding period of the asset. If held beyond a specific duration, it qualifies as LTCG; otherwise, it is considered STCG.

What are capital losses?

A capital loss occurs when you sell an asset for less than what you paid for it, meaning its value has dropped. In other words, capital loss refers to a financial loss of the value of an asset from its initial price while selling.

How much capital gains are tax-free?

In India, capital gains of up to ₹1.25 lakh from equity investments in a financial year are exempt from tax. This tax exemption is especially beneficial for small investors.

Are capital gains from cryptocurrency taxable in India?

Yes, cryptocurrency gains are taxable in India. They are classified as ‘business income’ and are subject to a 30% tax on any profits made.

Difference Between Long And Short-Term Capital Gains: Everything You Need to Know

Name: Long-Term vs Short-Term Capital Gains
Brand: Investments
Rating: 4.9 (9269 reviews)

Capital gains are profits which you make from selling assets like bonds, stocks, real estate, and more. The length of time you hold an asset before selling it plays a crucial role in determining how these gains are taxed.

There are two primary types of capital gains - long-term and short-term. Each of them has its distinct differences and affects how profits are taxed. Read to learn all about the difference between long and short term capital gains and their implications on your tax liabilities.

What are Capital Gains?

A capital gain refers to any kind of profit that results from selling a ‘capital asset’. In other words, a capital gain is when the increase of a capital asset’s value is recognised upon selling it.

Any asset you own that holds monetary value is considered a capital asset. This includes real estate, stocks, bonds, and even personal property such as boats, furniture, and collectables.

What are Long and Short-Term Capital Gains?

Capital Gains are primarily of two types - Long-Term and Short-Term. Even though both of them are related, there is a lot of difference between long and short term capital gains. Here are the definitions of both of them:

Long-Term Capital Gains

Long Term Capital Gains or LTCG refer to the profits which are made from selling assets that were held for more than a single year (for listed securities) and two years (for unlisted securities). These gains benefit from lower tax rates, which incentivise long-term investment strategies and contribute to financial market stability.

Short-Term Capital Gains

The Short Term Capital Gains or STCG are profits from selling assets which were held for less than a year. In most cases, these gains are taxed at a flat rate of 20%. However, for debt funds, capital gains are taxed as per the investor’s applicable income tax slab rate due to their shorter holding period.

What is the Formula to Calculate Capital Gains?

The calculation of capital gains requires a lot of steps, depending on the nature of it - Long Term or Short Term. There is a major difference between long term and short term capital gains tax calculation. Here are the formulas for calculating the Long and Short Term capital gains:

Long-Term Capital Gains (LTCG) Formula

LTCG = (Full value of consideration accrued or received) - (Acquisition cost + improvement cost + transfer cost)

Short-Term Capital Gains (STCG) Formula

STCG = (Full value consideration) - (acquisition cost + improvement cost + transfer cost)

Difference Between Long And Short Term Capital Gains

There are distinct differences between the two types of capital gains -long-term and short-term. Here are a few of them:

Basis of Difference	Long-Term Capital Gains	Short-Term Capital Gains
Tenure of Holding an Asset	Long-Term Capital Gains (LTCG) apply to assets such as land, buildings, and unlisted shares that have been held for more than 12 months (for listed securities) and 24 months (for unlisted securities) before being transferred.	Whereas, Short-term Term Capital Gains (STCG) apply to capital assets including land, buildings or unlisted shares which have been held for less than a tenure of 12 months before transfer.
Nature of Taxability	Long-Term Capital Gains (LTCG) are taxed at a rate of 12.5% (excluding surcharge and cess), encouraging long-term investments.	Short-Term Capital Gains (STCG) are taxed at a flat rate of 20% under all forms of short-term gains (as per Section 111A), also excluding cess and surcharge.
Aspect of Marketability	In LTCGs, investors have long-term investment goals which ensure higher profits on selling such assets.	In STCG, traders have short-term goals and sell assets quickly to achieve rapid profits.
Scope of Profits	This is yet another essential difference between short term and long term gains. Sellers expect higher profits with LTCGs as their holding period is more than a year. It allows them to get more established in the market as compared to STCGs.	Sellers get lower profits with STCG as they have a lower establishment in the market due to their short holding tenure.
Involvement of Risks	LTCGs carry higher risks due to their long holding period, as market fluctuations and liquidity concerns may impact the asset's value over time. There is also the possibility that the asset may become illiquid, making it harder to sell when needed.	STCGs have lower risks since the holding period is shorter, allowing investors to capitalise on market opportunities more quickly.

Final Words

Now that you understand the difference between long and short term capital gains, you will be able to manage your finances more effectively. While short-term gains may lead to higher tax liabilities if assets are sold within a year, long-term gains offer tax advantages for assets held beyond a year.

By considering these tax implications, you can adopt a more strategic approach to investment planning. This ensures that your financial strategy aligns with your long-term goals, helping you optimise returns while managing tax liabilities effectively.

When it comes to financial goals and stable investments, Fixed Deposits (FDs) are a reliable option! With the Stable Money app, you can earn returns of up to 9.10% on your FD investments.