Short-Term Capital Gains
Gains on assets sold within the short-term holding window.
Listed equity sold within 12 months is taxed at 20%. Frequent switching between schemes triggers STCG each time, which is a common hidden cost of portfolio churn.
Why Short-Term Capital Gains matters when comparing products
Understanding Short-Term Capital Gains (STCG) is crucial when evaluating financial products in India because it directly impacts net returns. Products with frequent trading or shorter holding periods can trigger STCG, leading to a portion of the gains being paid as tax. This tax incidence can significantly reduce the effective profit, making a seemingly attractive product less beneficial after taxes compared to others with different tax implications.
Illustrative example
An investor buys shares worth ₹10,000 and sells them for ₹12,000 within 12 months. The capital gain is ₹2,000. Assuming a hypothetical STCG tax rate of 15% (for illustration, not current rates), the tax payable would be ₹300 (15% of ₹2,000). The net gain after tax would be ₹1,700, illustrating how STCG affects final returns.