What are long term and short term capital gains?

Capital gains are categorized as short-term and long-term capital gains. The duration for which the asset is held determines whether it is a long-term asset or a short-term asset.

For some notified assets such as equity and debentures, a holding period of 12 months qualifies them as long-term capital assets. For immovable assets like land or houses, the holding period to qualify as long-term is 24 months.

Assets LTCA STCA
  • Securities (other than unit ) listed in rec. stock exchange.
  • Unit of equity oriented fund /unit of UTI
  • Zero coupon bond

If hold for > 12 months

If hold for ≤ 12 months
  • Unlisted shares
  • Land and building both

If held for > 24 months

If held for ≤ 24 months
  • Unit of debt-oriented fund
  • Unlisted securities other than shares
  • Other capital assets

If held for > 36 months

If held for ≤ 36 months

There is no provision for the losses under the head capital gain to be set off against any other income heads. Therefore, long term capital loss can be set off only against long term capital gains. On the other hand, you should note that short term capital losses are allowed to be set off against both long term gains and short term gains.

You can carry forward your capital losses if you are not able to set them off in a given fiscal year. These losses can be carried forward for eight years from the assessment year in which the loss was first reported.

Tax Rates - Long-Term Capital Gains and Short-Term Capital Gains

According to type of asset and the holding period, different tax rates apply to long- and short-term capital gains. This table shows the rates of these taxes.

Nature of Tax Condition Tax applicable

Long-term capital gains tax

If you sell Equity shares/ or the units of equity-based mutual funds

10% over and above Rs 1 lakh without the benefit of Indexation.

If you sell any capital assets other than items listed above

20%

Short-term capital gains Tax

The securities transaction tax is not applicable

Added to your tax liability and you will pay tax as per the slab you fall in.

The securities transaction tax is applicable

15%

Let’s say, for instance, that you earn capital gains of ₹30 lakhs from selling an apartment but suffer a capital loss of ₹15 lakhs from another investment. You can set off the loss of ₹15 lakhs against the gain of ₹30 lakhs, thus reducing your taxable income and thereby your tax outgo.

Benefits from Carrying Forward an LTCL

Sometimes, your capital losses might exceed your capital gains. In this case, you are allowed to carry forward your long term capital loss to set off against future capital gains. You can take forward your long-term capital losses for up to 8 assessment years following the year you suffered and computed the loss.

Here’s an example. Say you earned capital gains of ₹10 lakhs from one investment but incurred capital losses of ₹15 lakhs from another. You carry forward the remaining loss of ₹5 lakhs to the next 8 assessment years.

Special Case - LTCL from Listed Equity Shares and Equity Mutual Funds

Before Budget 2018, long term gains from these assets were subject to different treatment relating to setting off or carrying forward of losses. This is largely because capital gains arising from equity and equity oriented mutual funds were exempted from taxation. As a rule, exempted income cannot be used to set off capital losses. However, The profits and gains on these assets are now taxable if the amount of long term capital gain exceeds ₹1 lakh . Post-March 2018, if you suffer a long term capital loss when you sell shares or equity funds, you are allowed to set them off against any long-term capital gain. The losses can also be carried forward to set off later within 8 assessment years.