What is STCG and LTCG on shares?

Everyone loves when their portfolio is in green colour so to enjoy the gains they sell the shares.

But wait, do you know you have to pay a Capital gain tax on these gains?

I am sure you must have heard these terms STCG and LTCG.

Now let's understand these terms:

• If you sell a stock in profit within 1 year then you're liable to pay the Short Term Capital Gain Tax (STCG). It is 15% on the profit.

• If you sell a stock in profit after 1 year then you're liable to pay the Long Term Capital Gain Tax (LTCG). It is 10% on the profit.

Also, there is one exception for LTCG. Till 1 lakh you're exempted to pay any capital gains but If the gains are more than 1 lakh then you have to pay the LTCG on the excess amount.

Let's understand with a few examples:

• If you bought stocks for Rs 1 lakh and sold it within 1 year for Rs 130000 so 30k is your profit.

Now on this 30k, you are liable to pay a 15% capital gain tax so it will be 30000*15%= 4,500.

So Rs 4,500 will be your Short Term Capital Gain Tax.

• If you bought stocks for Rs 2 lakh and sold it after 1 year for Rs 280000 so 80k is your profit but in this, you won't have to pay any capital gain tax because as I mentioned till 1 lakh there is exemption :)

Now let's take another example for LTCG.

If you bought stocks for Rs 10 lakh and sold it after 1 year for Rs 12 lakh, so 2 lakh is your profit.

Now in this 2 lakh, you are liable to pay LTCG only on the 1 lakh because till 1 lakh we have an exemption, so now the excess amount is Rs 1 lakh.

100000*10%= 10,000.

So Rs 10,000 will be your Long Term Capital Gain Tax.

What If you made a loss?

Short term capital losses if filed within time can be carried forward for 8 consecutive years and set off against any gains made in those years. 

Let's understand with an example:

If your short term capital loss for this year is Rs 1 lakh so this can be carried forward to next year.

Now in the next year say Rs 60k is your short term capital gain (profit) then you no need to pay 15% capital gain tax because this gain can be set off against the loss which was carried forward.

Now we still are left with a Rs 40,000 (Rs 100,000 – Rs 60,000) loss which is carried forward for another 7 years.

Remember, 

"Long term capital loss can be set off only against long term capital gain and Short term capital loss can be set off against both long term gains and short term gains."

See y'all in the next blog, Cheers!