Difference Between Short Term and Long Term Capital Gain

Edited by Diffzy | Updated on: August 11, 2022


Difference Between Short Term and Long Term Capital Gain Difference Between Short Term and Long Term Capital Gain

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Capital gains are those that are obtained from the sale or transfer of assets that include shares, bonds, gold, building, car, jewellery and so on. The tax that an individual pays on the capital gain depends on how long an individual has held the asset before giving it out for sale. Depending upon the sale of the investment, capital gains can be divided into two parts: long-term capital gain and short-term capital gain. Capital gains are taxable under the Income Tax Act since it is regarded as the income or profit of the previous year in which the transfer takes place. This article shall focus on the key differences that exist between the two types of capital gain.

Long Term Capital Gain vs Short Term Capital Gain

The key difference between long term capital gain and short term capital gain is that long term capital gain is the profit obtained from the long term investment of the asset. On the other hand, short term capital gain means the profit earned from assets of a shorter duration. The primary difference between the long term and short term capital gain lies in the period for which the capital asset is owned by an individual. Let us take an example: assuming that the minimum holding time for a mutual fund is one year. The profit obtained from that mutual fund will be considered long term only if it is sold after one year. Similarly, the gain from that fund will be considered short term if the fund is sold in less than a year. 

Differences Between Long Term Capital Gain and Short Term Capital Gain in Tabular Form

Table: Long Term Capital Gain vs Short Term Capital Gain
Parameters of Comparison
Long Term Capital Gain
Short Term Capital Gain
When an individual or an organization receives more than what is paid by selling a long-term asset, it is known as long term capital gain.
On the other hand, when an individual or an organization receives less than what is paid by selling a short-term asset, it is termed short term capital gain.
The Period of the Financial Asset
The period for a long term capital gain is more than a year.
The period for a short term capital gain, on the other hand, is less than a year.
Long-term capital gains are subject to a 20% tax, minus levy and penalty. Eligible taxpayers can reduce it to 10% provided they fulfil certain conditions, which must apply to shares traded on a stock exchange or mutual funds.
On the other hand, short term capital gains, under Section 111, are subject to a 15% tax, minus penalties and levies. Short term capital gains not falling under section 111A are taxed at the ordinary income tax rate.
Profits Attained
Because the holding duration exceeds a year in long term capital gain, therefore the profits to be realized are likely to exceed the relatively brief benefit.
On the other hand, in short term capital gain, profits may be lower than long-term gains due to the short holding period, and the asset may or may not have expanded successfully into the trades while still bringing significant benefits to the seller. 
Capital or Monetary Asset
When assets are possessed for more than 2 years in the context of immovable property and for more than 36 months in the context of moveable property, we allude to them as long term assets.
On the other hand, when the assets are held for less than 12 months in the case of immovable property and less than 36 months in the context of moveable property, we allude to them as short term assets.
Risk Factor
Investing in long-term goods is riskier. This is because of the extended waiting period, the commodities subsequently become non-liquid.
Investing in short term goods involves low risk. This is because of the shorter holding period where the time is short and there is also less danger.
Gold Holding Period
The gold holding period for long term capital gain is more than 3 years with a 20% tax on gold.
On the other hand, the gold holding period for short term capital gain is less than 3 years and the tax on gold is as per the income tax slab.

What is Long Term Capital Gain?

A long term capital gain is the profit that is obtained from the sale of a qualifying asset that has been possessed by an individual for more than a year at the time of the sale. The long term profit is determined by the difference in the value between the cost price and the selling price. Long term capital gains are the operations that offer profits over one to three years. This implies that if an individual possesses an asset for three years before selling it, the gain of the assets at the time of the sale will be deemed long-term capital gains. 

In the case of immovable property like land, the property is termed as a long-term capital asset if it is possessed for more than the maximum period of 24 months (2 years). Long-term capital gains are taxed at graded rates based on a chargeable level of income of 0%, 15%, or 20%. Most individuals or taxpayers who declare long-term capital gain, pay a tax rate of 15% or less than that. However, since the government recognized that in various cases, the amount payable increases and may be summed up to become a huge amount, therefore there are some exemptions provided under which long-term capital gain taxes are erased. They are:

  • In terms of property purchases and sales, if the profit from the sale of one asset is deposited in the other between one to two years, the profits are tax-free. This waiver will likewise be null and void if the asset is sold or relocated within three years of its acquisition.
  • Returns on investment in mutual funds maintained for more than a year may not be taxed in certain situations, according to investment consulting group proposals.
  • The money obtained from a long-term capital gain may be tax-free if it is invested in the Capital Gains Account Program.

There are also various types of assets or investments that can generate long-term capital gain. The investments that generate profits are described as under:

  1. Stocks: since the investment is held for a very long period. Therefore the returns or the profits obtained from stored stocks or bonds are generally high. Due to their possession for a long period, they can generate a long-term capital gain.
  2. Selling of any immovable property: real estate or agricultural land that has been on hold for more than three years is considered a long-term capital asset. When such assets are sold or purchased, the profit incurred is termed the long-term capital gain.
  3. Investments in mutual funds: when an individual invests in any mutual funds for about a year or more, the returns that are possessed are known as long-term capital profit.
  4. Gold investment: Physical gold, virtual gold, gold funds, and gold exchange-traded funds are all different options for investing in gold. However, the requisite time frame for gold investment profits to be deemed long-term capital gains is three years. Long-term capital gains on gold investments are taxed at a rate of 20%, with expected indexation that decreases the total long-term capital gain value to represent the impact of inflation on the asset.

What is Short-Term Capital Gain?

A short-term gain is a profit made through the sale, exchange, or another disposal of private or industrial property that has been owned for a year or less. The short-term profit is the distinction between the capital asset's bases or the acquisition payment made for it and the market price obtained for disposing of it. Short-term profits are taxed at the highest marginal income tax rate of the individual. Once the ownership time for certain commodities is determined as "short term," the tax rates that pertain must be considered. When a security transaction tax is appropriate, the authority can choose whether to levy a 15% short-term tax on capital gains. Similarly, where there is no security transaction tax, the short-term capital profits are reported to the income tax return, and the person is charged as per their income tax rate.

After taking the full value of the asset into account, the expenditures incurred in connection with the transfer are deducted. The cost of acquisition and improvements is also deducted, and the leftover is termed as short-term capital gain. However, the taxability on various items that fall under Section 111A, is excluded from several investments. They are described as under:

  1. Short-term capital gains from the selling of treasuries, sovereign bonds, and debt securities.
  2. Short-term capital gains on the selling of equity securities on an unregistered stock market.
  3. Short-term investment income through the transfer of immovable property, silver, gold, and so on.
  4. Short-term capital profits from the selling of any assets other than equity securities.
  5. Short-term capital gains on the selling of non-equity-driven mutual funds.

Short-term capital gains can be divided into two types: 

Short-term capital gains as provided under Section 111A. These are again divided as:

  1. Zero-coupon bonds.
  2. Gains obtained from various stocks, both equity and preference of the organizations that are listed on stock exchanges such as BSE or NSE.
  3. Other securities like government security, debentures, bonds, and many more are listed on the stock exchange of the Indian government.
  4. The gains obtained from UTIs, mutual funds, and others also come under Section 111A.

Short-term capital gains other than as provided under Section 111A. These can be divided as under:

  1. Profits obtained from debt-oriented mutual funds.
  2. Profits that are government securities, bonds, debentures, and others.
  3. Short-term capital gains which are attained only from shares rather than from mutual shares or other equity shares.
  4. The gains attained from the sale of equity shares that are not included in the loss of the Stock Exchange of India.
  5. Profits obtained from immovable properties like land, real estate, building, and other assets such as gold, silver, jewellery, cars, etc. come under the short-term capital gains, which are not included under Section 111A. 

Differences Between Long Term Capital Gain and Short Term Capital Gain in Points

  • A short-term capital gain is one in which the person owns the proceeds from the sale of a capital asset for less than 36 months. When the transferable asset is kept by the investor for more than 36 months, the gain resulting from the transfer is referred to as a long-term capital gain.   
  • The tax on a long-term capital gain is usually lower than the tax on the identical asset sold in less than a year. Because long-term capital gains are generally taxed at a lower rate than short-term capital gains, owning an asset for a year or longer might help one reduce their capital gains tax. On the other hand, short-term capital gains are subjected to taxation as ordinary income. They are also subjected to whichever marginal income tax category they fall under:
  • Long-term capital gain can be calculated by putting the entire value of contribution and then subtracting the costs of transferring the asset, the adjusted cost of purchase, the adjusted cost of development, and an exception if any. The adjusted value of purchase and indexing cost of upgrading is computed by dividing the inflationary pressures in the year of purchase by the rate of inflation during the year of transmission. On the other hand, the short-term capital gain may be computed by taking into consideration the entire value and then subtracting the necessary expenditures to move the investment, the cost of the purchase, the cost of improvement and exemption, if any.
  • Long-term investments are risky. As a result of the lengthy waiting period, the commodities become non-liquid. Investing in short-term products has less danger. This is due to the shorter waiting period when time is limited there is less risk.


Thus, from the above description, it is seen that both short and long-term capital gains are taxable as these are leading means of income. However, the Income Tax act defines the applicable exemptions for individuals. The main difference between these two lies in the duration of the asset owned. Although the long-term transactions appear appealing due to the profits produced with reduced tax rates; nevertheless, one must consider if it is beneficial to retain the item for more than a year. 



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"Difference Between Short Term and Long Term Capital Gain." Diffzy.com, 2023. Mon. 20 Mar. 2023. <https://www.diffzy.com/article/difference-between-short-term-and-long-term-774>.

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