STCG (Short-Term Capital Gains)
Short-Term Capital Gains (STCG) are profits earned from selling a capital asset before the minimum holding period required for long-term classification. The tax rate on STCG is generally higher than on LTCG.
If you buy shares today and sell them within 12 months at a profit, that profit is STCG on equity — taxed at 20% (after Budget 2024). Hold the same shares for over 12 months and the gain becomes LTCG, taxed at 12.5% above ₹1.25 lakh.
Holding periods and STCG thresholds
Short-term if held for 12 months or less. STCG taxed at 20%.
As per rules effective April 2023, gains on debt funds are added to income and taxed at slab rates regardless of holding period — the STCG/LTCG distinction no longer applies to most debt funds.
Short-term if held for less than 24 months. STCG added to income and taxed at slab rates.
Short-term if held for less than 24 months (36 months for unlisted shares). Taxed at slab rates.
STCG vs LTCG at a glance
- Holding period: STCG applies when the asset is held below the threshold; LTCG applies above it.
- Tax rate: STCG rates are higher — equity STCG is 20% vs LTCG at 12.5% (above ₹1.25 lakh exemption).
- Indexation: Not available for STCG; indexation benefit applied to certain LTCG categories (removed for most from Budget 2024).
- Set-off: STCG can be set off only against capital gains, not other income heads.
How SIP redemptions are taxed
Each SIP instalment is treated as a separate investment for tax purposes. When you redeem units from an equity fund, the units purchased within the last 12 months attract STCG. Units held beyond 12 months attract LTCG. This FIFO (first in, first out) method is used by default.
Time determines tax
The holding period alone determines whether a gain is short-term or long-term.
Higher tax rate
STCG on equity is 20% — significantly more than the 12.5% LTCG rate.
Set-off rules
STCG losses can be set off against both STCG and LTCG in the same year.
Tax planning around STCG
- Holding equity investments beyond 12 months converts STCG to LTCG, reducing your tax from 20% to 12.5%.
- Tax-loss harvesting — selling loss-making positions to offset STCG — can reduce your overall tax liability.
- For SIP investors, keep track of each instalment's purchase date to know which redemptions will attract STCG.
- Consult a tax adviser before year-end to assess whether deferring redemptions would result in a lower tax rate.