Long Term Vs Short Term Capital Gain

Published : 28 Feb 2023

 Definition Short term capital assets –  Profit gained from the sale of short-term capital assets within one year is short term capital gain. Long term capital assets –  Long term capital gain arises from the sale of long-term capital assets sold after holding it for a one year.

Risk involvement Definition ● Short term Capital gain involves lower risks as the holding period is relatively shorter ● Long Term capital gain involves higher risk because of the long waiting period, the assets may become illiquid later.

Taxability   ● 15% tax is applicable on short term capital gains that fall under section 111, excluding surcharge and cess which the ones that do not fall under section 111A are taxable at a regular income tax rate. ● 20% tax is applicable on long term capital gains, excluding cess and surcharge. Eligible taxpayers can bring it down to 10% against meeting specific criteria which must apply for securities listed on a stock market or mutual fund

Computation of Long term Capital Gains: ● Long term capital gain is computed using indexed cost of acquisition/improvement and is calculated as follows. Indexed cost of acquisition = (Cost of acquisition x cost inflation index of year of transfer of capital asset)/(Cost inflation index of year of acquisition) Long term Capital Gains = cost of selling a property – Indexed cost of acquisition

Computation of Short term  Capital Gains:  ● Short term capital gains can be easily calculated by subtracting the expenditure incurred on an asset from the cost of sale of that asset. Short term capital gains = sale cost of asset – (expenditure incurred on asset) – (cost of acquisition/improvement)

Check out more 5paisa webstories

Swipe up