Difference Between Long-Term vs Short-Term Capital Gains

When an investor earns a profit on the sale of assets such as Real estate, stocks, bonds or Mutual funds, it’s called as Capital gains. This is considered as Taxable income and the amount of such tax primarily depends on 2 factors:

  • Income of the investor
  • The time period for which the asset has been held

Head to Head Comparison (Infographics)

Below is the top 5 difference between Long Term vs Short Term Capital Gains


Key Difference between Long-Term vs Short-Term Capital Gains

Both Long-Term vs Short-Term Capital Gains are popular choices in the market; let us discuss some of the major Differences:

  1. Long-term Capital gains are those arising out of the transfer of a long-term capital asset from an individual whereas a short-term capital gain is created by the transfer of a short-term capital asset.
  2. In the case of a financial asset, the holding period applicable for long-term capital gain is greater than 12 months and in respect of short-term capital gain, it is less than 12 months.
  3. The long-term capital gain for capital assets is applicable if it is held for more than 24 months in case of immovable property and 36 months in the case of movable ones. On the other hand, a short-term capital gain for immovable properties is applicable if it’s held for less than 24 months and 36 months in case of movable ones.
  4. Long-term gain can be taxed at 0%, 15%, 20% depending on the income tax bracket one falls into. Exceptions by the government may also be required to factor in. Short-term gain is taxed at the same rate as ordinary income.
  5. If one has any offsetting losses in the same year it can be offset against capital gains. However, firstly all the short-term losses have to be offset against the short-term gains and the long-term losses against long-term gains. If there is still any excess, such as having a net long-term gain and a net short-term loss, the extra short-term losses can be used for offsetting against the long-term gains.
  6. In the case of inherited assets especially real estate, the profits are always considered as long-term gains. Special tax provisions are provided by respective governments for the same. However, if the property is received as a gift, one can include the donor’s holding period to self but not automatically considered a long-term gain.
  7. The formulas are:
    1. STCG (Short-term Capital Gain) = Full Value of Consideration – (Cost of Acquisition + Cost of Improvement + Cost of Transfer)
    2. LTCG (Long-Term Capital Gain) = Full value of Consideration – (Indexed Cost of acquisition + Indexed Cost of Improvement + Cost of Transfer)

Let us consider the following examples:

For instance, if Mr. A purchased Gold for INR 4 Lakhs and sold it for INR 5 Lakhs for the year of 2017, the STCG would be:


The importance of below terminologies should also be noted:

Full Value of Consideration: Amount or consideration received by the seller on transfer/selling the asset

Expenditure Incurred: Expense incurred in transferring the asset like brokerage or fee.

Cost of Acquisition: The amount for which asset was acquired

Cost of Improvement: Expenses incurred for improvising the asset

Indexed Cost of Acquisition =


 Indexed Cost of Improvement =


The objective of indexation is to factor in the impact of inflation since the period of time is spread over a large number of years.

There are various exemptions defined as per the respective Income Tax act and accordingly has to be considered.

Long-Term vs Short-Term Capital Gains Comparison Table

Below is the 5 topmost comparison between Long-Term vs Short-Term Capital Gains

Basic Comparison Long-Term Capital Gain Short-Term Capital Gain
Meaning Transfer of long-term capital asset from an individual. Profits arising on the transfer of the short-term capital asset.
Holding Period (Financial Asset) Greater than 12 months. Less than 12 months.
Capital Asset Greater than 24 months for immovable property and 36 months for movable property. Less than 24 months for immovable property and 36 months with respect to movable ones.
Tax rate Depends on the income bracket. Similar to a rate of ordinary income.
Offsetting losses Offset on a secondary basis. Offset first against short-term gains.

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