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Long Term Capital Gains: Difference Between LTCG & STCG On Share Investments

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Long Term Capital Gains

When capital assets are sold for more than their original price, the profit made is called Capital Gains. The category includes bonds, stocks, jewellery, precious metals, and real estate properties. Capital Gains earned from Capital Assets are also taxable and the amount of tax depends on the time period for which they are held. On this basis, Capital Gains are classified into two categories, namely Long Term Capital Gains and Short Term Capital Gains, and are taxed accordingly. 

In general, profits earned from selling assets that are held for more than 36 months (3 years) are classified as Long Term Capital Gains. However, this definition is applicable for all capital assets except for equities. Let us learn more about LTCG on shares.

Long Term Capital Gains on Shares

In order to enjoy the tax benefits under Long Term Capital Gain on Shares, you do not need to wait for 36 months. In the case of shares (equities), the minimum holding period is only 12 months. Moreover, the definition of equities is also quite broad in this case as it includes equity mutual funds, secondary market equities, and primary market IPOs as well. 

LTCG on shares comes with a number of perks as compared to STCG (Short Term Capital Gains). To understand these benefits, it is also important to learn the key differences between LTCG on shares and STCG on shares.

Differences Between Long Term Capital Gains and Short Term Capital Gains (on Shares)

Holding Period 

LTCG on shares is valid when the investments are held for a minimum of 12 months (1 year). Consequently, profits from holdings sold within 12 months from the date of their purchase are considered Short Term Capital Gains.


Both LTCG and STCG on equities are given preferential treatment when it comes to taxation. This is done in order to motivate people to invest more in the share market. 

LTCG on Shares: While capital gains on non-equity assets (holding period: 36 months) are taxed at 20 percent after considering indexation, there is no such taxation for LTCG on shares. This implies that if you are selling equity shares after 12 months of buying the same, you won’t have to pay any tax, irrespective of the quantum gains made from selling the assets.

STCG on Shares: Just like LTCG on shares, STCG on shares are also given special preference when it comes to taxation. In the case of non-equities, STCG is taxed at the highest rate of tax, and the gains from equities are considered as ‘Other Income’. This means that if you are under the 30 percent tax slab, the gains made from selling equities in the short term will also be taxed at 30 percent. However, the gains made from selling equities in the short term (under 12 months) will only be taxed at a concessional rate of 15 percent.

Hence, comparing both the cases, holding equity investments for the long term, i.e; more than 12 months brings you more benefits when compared to holding the same for the short term (less than 12 months).

Treatment of Loss under LTCG and STCG

Just like profits, losses are also a common thing in the share market. But these losses are treated when in comes to taxation? The treatment of losses in the case of equities is slightly more complicated than that of non-equities. 

  • Since gains made by selling Long Term Capital Assets are not taxable, the losses made in the same cannot be written off against income from other sources in order to reduce the taxable value of net income. For example, if you have bought equity shares for Rs 20,000 and sell those at Rs 15,000, which means a Rs 5,000 loss, you cannot set it off against income, nor carry it forward.
  • However, the case is entirely different in the case of STCG. Since Short Term Capital Gains are taxed at 15 percent, losses made by selling equities in the short term (less than 12 months) can be written or set off against profits made from other sources. Moreover, unlike LTCG, losses made in selling Short Term Capital Assets (equities) can be carried forward for a period of 8 years.

Indexing in Case of Equities

Indexing is the option by which investors can claim benefits from inflation adjustment so that their profit/loss looks more realistic. This is decided on the basis of the annual index number released by the CBDT every year. But since Long Term Capital Gains on Equities are entirely tax-free, there is no option to claim benefits from Indexing in this case. 

So we have seen, how Long Term Capital Gains on equities are more profitable than any other capital gains (both equities and non-equities) when it comes to taxation. This is because the government also tries to promote long-term investments so there is continuous money flow in the market and the economy keeps growing based on the contribution of the general public as well. Keeping all the aforementioned points and differences in mind will help your churn out maximum benefits from your investments.

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