Short Term Capital Gain on Shares (Section 111A of Income Tax Act) - STCG Tax Rate and Calculation

Section 111A of the Income Tax Act, 1961, applies to the profit you earn from the sale of shares or mutual funds. In India, this section plays a vital role in the taxation of short-term capital gains (STCG), particularly for equity mutual funds, equity shares, and business trust units. As of 23 July 2024, under section 111A, the tax rate on short-term capital gains increased from 15% to 20%.

Want to know more about this section and how tax is charged on the profits of short-term capital gains? Then you are browsing the right page. In this blog, we have mentioned all about this section. Read on to learn about it.

Short Term Capital Gains (STCG) under Section 111A

Section 111A of the Income Tax Act, 1961, applies to the short-term capital gains (STCG) that are earned from the sale of equity-oriented mutual funds or listed equity shares that are only held for 12 months or less. Additionally, the securities transaction tax (STT) has already been paid on them.

Currently, under section 111A, STCG from the sale of shares is taxed at 20%. No deduction under Chapter VI-A applies to them. Furthermore, according to the Finance Act 2025, a rebate under section 87A is also not available under section 111A for STCG.

This was all about short-term capital gains under section 111A of the IT Act. Moving further, let's know the applicability of this section.

Applicability of Section 111A

Section 111A of the Income Tax Act applies to the following short-term capital gains:

• Gains earned from the sales of equity shares listed on the Indian stock exchange.
• Gains arise from the sale of listed equity shares, equity-oriented mutual funds, or units of recognised business trusts.
• The Securities Transaction Tax has been paid.
• Investment sales occur on an IFSC exchange, and payments are made in foreign currency.

These are short-term capital gains on which section 111A of the Income Tax Act, 1961, applies. Additionally, this section does not apply to short-term capital gains from real estate, debt-oriented mutual funds, and unlisted shares, which are subject to different tax rules.

This was all about the applicability of section 111A on the STCG. Moving on, let's look at the tax rates under this section.

Tax Rates Under Section 111A

Under section 111A of the Income Tax Act, the tax rate on short-term capital gains depends on the sale date of the securities:

• Sales done before 23 July 2024: Without the benefits of indexation, at 15% STCG is taxed.
• Sales done after 23 July 2024: Without the benefits of indexation, STCG is taxed at a higher rate, i.e., 20%.

Section 111A of the Income Tax Act clarifies and standardizes the tax rules on short-term capital gains, ensuring uniform taxation of STCG.

This was all about the tax rates on STCG under section 111A of the IT Act. Now, in the next section, let's look at the adjustment of STCG against the basic exemption limit.

Adjustment of STCG Against Basic Exemption Limit

Under Section 111A of the IT Act, you can adjust your short-term capital gains against the basic tax exemption limit if you fulfill the following conditions:

• You are an Indian resident who pays tax in India
• Your gross income after tax deduction is less than the basic tax exemption limit

In such situations, your STCG can be adjusted. However, after the adjustment under section 111A, the tax will be charged on the remaining STCG.

Confused? Let's understand the STCG adjustment against the basic exemption limit in section 111A through an example.

Illustration

Suppose Mr. A is an Indian resident having INR 1,00,000 per annum. Recently, he sold his equity shares for INR 4,00,000, resulting in a short-term capital gain. Additionally, he also had an income of INR 50,000 from other sources. Now, based on the mentioned information, calculate the STCG tax applicable to him.

Here, the total income taxable apart from STCG is INR 1,50,000. As Mr. A's income is below the basic tax exemption limit, the STCG from the sale of equity shares will be reduced to INR 1,00,000. The tax calculation here is based on the old tax regime, i.e., the basic tax exemption limit for an individual is INR 2,50,000.

Now, consider that, instead of a resident Indian, Mr. A was an NRI; then he would not be able to claim the exemption on his short-term capital gain, and, based on the sale date of his shares, he would be required to pay tax at the applicable tax rate.

This is how the STCG adjustment is made against the basic tax exemption limit. Moving ahead, let's know the carry forward & set off of losses in short-term capital loss (STCL).

Set Off & Carry Forward of Losses

Within 12 months of purchase, when specific investments or securities are sold at a loss, the loss is treated as a short-term capital loss. Under the income tax rules of India, this is how they are carried forward or set off:

• In the same financial year, you can set off the STCL against the long-term capital gain (LTCG) or short-term capital gain (STCG).
• If the STCL is not fully set off in the same financial year, the remaining loss amount up to 8 assessment years can be carried forward and adjusted only with future LTCG or STCG.
• The settlement of STCL cannot be made from income from any other head, such as business income or salary.

This was all about carry forward and set off of losses in STCL. Moving ahead, let's see how STCG is calculated.

Calculation of STCG

The calculation of short-term capital gain on shares is done as follows:

Moving further, let's better understand this with an illustration.

Illustration

Suppose Mr. D is a person who, in June 2024, purchased INR 1,00,000 shares and, in December 2024, sold those shares at INR 1,40,000. Additionally, during the sale, he paid INR 1,000 for brokerage. From the mentioned information, now calculate the tax liability on STCG.

As per the above calculation, Mr. D's tax liability is INR 7,800 (excluding the 4% cess). However, if Mr. D's only source of income is from shares, he can adjust his capital gains against the basic exemption limit and pay nil tax.

Final Thoughts

Section 111A of the IT Act, 1961, is an essential provision for individuals who invest in equity mutual funds and the stock market. With the increased tax rate, i.e., 20%, this section becomes more vital for investors to plan their investments wisely. Additionally, knowing about this section helps you in making better decisions.

With this, if you need more information about this section, connect with Savetaxs. We have a team of professionals who can provide you with more guidance on this section and answer all your queries. So contact us now and choose the investment that perfectly matches your financial goals.