Centre may hike short term capital gains tax above 20% in future: Official

In the recently introduced Budget on July 23, Finance Minister Nirmala Sitharaman had raised the STCG tax on some financial instruments to 20 per cent

The Centre may consider increasing the short term capital gains (STCG) tax on financial assets to beyond 20 per cent in the future, Moneycontrol reported on Wednesday citing a senior government official.
 

“STCG is not an investment. No reason why STCG should be at 20 per cent. It can be higher,” the official said, noting that gains from short-term trading, mostly in mutual funds and equities, cannot be equated with investments.

The official further said that STCG does not impact the economy. In the recently introduced Budget on July 23, Finance Minister Nirmala Sitharaman raised the STCG tax on some financial instruments to 20 per cent.

 

What are short term capital gains (STCG)?

STCG is categorised as the gains from the financial assets that are held for less than one year. If these assets are held for more than a year, the gains are classified as long-term capital gains. Prior to the latest Budget, different financial assets figured themselves under different STCG and LTCG categories. However, this time the finance ministry has made an effort to simplify the duration linked with the assets and the taxation system applied to them.
 

In terms of taxation, some assets such as equities were taxed at 10 per cent under LTCG and 15 per cent in the case of STCG. However, in the new Budget, the long-term gains on all financial and non-financial assets will attract a tax rate of 12.5 per cent.

Meanwhile, the short-term capital gains on specified financial assets shall be taxed at a rate of 20 per cent while the remaining other assets, based on the applicable tax rate.
 

This has been done to maintain a level of consistency in the broader tax framework. Additionally, the Centre increased the exemption limit under the LTCG tax from the existing Rs 1 lakh to Rs 1.25 lakh for FY 2024-25 onwards.
 

The new system has also removed the indexation benefits from LTCG.