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Write the difference between short term capital gain and long term capital gain.
The major differences between short term capital gain and long term capital gain are as follows −
Short term capital gains
- Held for less than a year or a period and then sold off.
- Difference between consideration received and cost basis (short term asset).
- If the asset is owned for less than 24 months it is considered as immovable property and if it is owned for less than 36 months it is termed movable property.
- Easily tradable and liquid assets.
- Short term view of market.
- Lesser profits compared to long term gains.
- Less risk.
- Tax rates are same as income tax for individuals.
- Taxes may be reduced by including short term capital loss in the same year.
Short term capital gains = total value of sale consideration – (acquisition cost + improvement cost + total expenditure with transfer) – reinvestment is specific asset.
Long term capital gain
- Held more than a year of time and then sold off.
- Difference between considerations received and cost basis (long term asset).
- If the asset is owned for more than 24 months it is considered as immovable property and if an asset is owned for more than 36 months movable property.
- Includes all liquid and easily tradable and other long term assets (machinery, gold etc.).
- Long term view of market.
- Risk is higher compared to short term capital gains.
- Tax rate is 20% + cesses (if capital gain on sale of equity asset is more than 1 lac, then it is charged 10%).
- Different tax rates for different slabs (for 10% to 15% tax rate is 0%, for 20% to 35% tax rate is 15%, above 39.6% tax rate is 20%).
Long term capital gain = total value of sale consideration – (acquisition cost with indexation + improvement cost with indexation + total expenditure with transfer) – reinvestment is specific asset.
Updated on: 25-Sep-2020
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