STCG

Short-Term Capital Gains (STCG) tax applies to profits earned from selling equity shares, equity mutual funds, or equity-oriented instruments within 12 months of purchase. Under Section 111A of the Income Tax Act, STCG on listed equity (where Securities Transaction Tax has been paid) is taxed at a flat rate of 20% (plus applicable surcharge and cess).

The classification is straightforward: if you buy shares of Infosys today and sell them within 12 months at a profit, the entire gain is STCG. For equity Mutual Fund units and equity-oriented hybrid funds, the same 12-month rule applies. For debt mutual funds and other non-equity assets, the short-term holding period varies (36 months for debt funds purchased before April 2023; all gains taxed at slab rate for newer purchases).

The 20% STCG rate applies specifically when STT (Securities Transaction Tax) has been paid on the transaction — which is the case for all shares and equity funds traded on recognised stock exchanges (NSE/BSE). For unlisted shares, the holding period for short-term is 24 months, and gains are taxed at the individual's income tax slab rate, not the flat 20%.

Intraday trading profits are NOT classified as STCG. They fall under "speculative business income" and are taxed at your income tax slab rate. Similarly, frequent F&O trading profits are classified as "non-speculative business income" and taxed at slab rates. The STCG classification applies only to delivery-based equity transactions.

Tax planning around STCG involves timing sell decisions — waiting for the 12-month mark to qualify for the lower LTCG rate of 12.5% (with INR 1.25 lakh exemption) can save significant tax. However, tax tail should not wag the investment dog — holding a stock past the 12-month mark purely for tax reasons while fundamentals deteriorate can cost more than the tax saved. Consider Rebalancing with tax efficiency in mind, using losses to offset gains (tax-loss harvesting) within the same financial year.