Difference between Short term capital gain and Long Terms capital gains
A capital gain is a profit earned on sale of capital asset like bonds, stocks, precious metals and property. It is the difference between what you paid for an investment and what you recieve when sell the investment. These capital gains are taxed differently. Profits or Gains arising from the transfer of a Capital Asset made in a Previous Year is taxable under the head ‘Capital Gains’.
Short term capital gain vs Long Terms capital gains
The Capital gains are classified as Short term capital gain and Long Terms capital gains with reference to the period of holding of the asset by the assessee. Normally the period is counted from the date of acquisition to the date of transfer.
Short term capital gain (STCG): Any capital asset like Shares or any other security or unit of the UTI or Mutual Fund specified u/s.10(23D) held for not more than 12 months and other capital assets held for not more than 36 months are classified as Short term capital gain. Short term Capital Gains is included in the total income and taxed as per applicable rates.
STCG = Full value of consideration – (Cost of acquisition + cost of improvement + cost of transfer)
Long Terms capital gains (LTCG): Long-term capital gains are usually taxed at a lower rate than regular income. Any capital asset like Shares or any other security or unit of the UTI or Mutual Fund specified u/s.10(23D) held for more than 12 months and other capital assets held for more than 36 months are classified as Short term capital gain.
Indexed Cost of Acquisition: For computing the LTCG, knowledge of cost inflation index (CII) is necessary and a cost inflation index helps to reduce the inflationary gains, thereby reducing the long-term capital gains tax payout for a taxpayer.
Indexed Cost of Acquisition=Cost of purchasing a property x (Cost Inflation Index of selling year) / (Cost Inflation Index of buying year)
LTCG= Cost of selling the property -Indexed Cost of Acquisition
Table with cost inflation index
