What are Short Term Capital Gain (STCG) and Long Term Capital Gains (LTCG) on Shares?
Short Term Capital Gain on Shares:
Any profit that is realized from disposition, transfer or sale of any investment property or asset is known as a capital gain. If holding term for these properties is less than 12 months (36 or 24 months in some assets), then profit generated from their sale is termed at Short Term Capital Gain.
In case of Equity Shares, a holding period of less than 12 months is considered to be short term Investment. Short Term Capital Gain on Shares is the difference between the basis of a short term share or its purchase price and price received on its sale. The calculation of gains from share is crucial to comprehend tax implications on the same.
Long Term Capital Gains on Shares:
A Long Term Capital Gain is profit generated from sale of any qualifying investment option that has been owned by an investor for more than 12 months at the time of sale of asset. It is determined by the difference in value of sale price and purchase price of assets owned for over 12 months. This gain is, therefore, the net profit that investors enjoy while selling this asset.
When it comes to qualifying investment options, listed equity shares are included in those qualifying investment options, which if held over 12 months, generate LTCG on shares.
As far as profitability on investment is considered, most investors prefer to invest in the long-term assets to earn Long Term Capital Gain on equity shares as they also offer tax benefits over earnings from short term capital assets.