What is Short Term Capital Gain?
Short-term capital gain, as the name suggests, is the profit earned by an individual from the transfer or sale of the short-term capital asset.
Here short-term capital asset implies the asset (movable) which is owned by the assessee for a period less than 36 months just before the transfer date.
Although, in the case of immovable property, the period of holding is less than 24 months immediately preceding the date of transfer.
In the case of financial assets that are quoted in the recognized exchange, the asset holding period should not be exceeding 12 months and for unlisted securities the period of holding is less than 24 months.
What is Long Term Capital Gain?
When the period for which the asset (movable) is held is greater than 36 months, just before the transfer date, the capital asset is regarded as the long-term capital asset, and the gain is known as long-term capital gain.
However, on the transfer of immovable property such as land, building, etc., the holding period should be 24 months or more.
In case of securities, which are listed on a recognized exchange, the period of holding is reduced to 12 months or more and for unlisted securities, the holding period must be 24 months or more.
Difference Between Short Term and Long Term Capital Gain
Short-term capital gain is one in which profit earned from the sale of the capital asset, is owned by the assessee for a period less than 36 months.
Conversely, when the asset transferred is held by the assessee, for more than 36 months, the gain arising out of such transfer is termed as long-term capital gain.
On the transfer of immovable property by the assessee, if the period of holding is less than 24 months, then the gain arising out of such transfer is known as short-term capital gain, while if the same is held for a period exceeding 24 months, the gain is termed as long-term capital gain.
Comparison Between Short Term and Long Term Capital Gain
| Parameter of Comparison | Short Term Capital Gain | Long Term Capital Gain |
| Meaning | Profit arising out of sale of short term capital asset is known as short term capital gain. | Long term capital gain is one that arises on the transfer of long term capital asset from an individual. |
| Capital asset | Less than 24 months for immovable property and 36 months in case of movable one. | More than 24 months for immovable property and 36 months in case of movable one. |
| Financial asset | Holding period is less than 12 months. | Holding period is more than 12 months. |
| Rate of taxation | Normal income tax rate | 20% |