InvestorQ : Can you explain short term gains with an example?
swati Bakhda made post

Can you explain short term gains with an example?

Answer
user profile image
Dia Deshpande answered.
1 year ago


Mr. Pandit is a salaried employee with a consultancy firm in Guwahati. In the month of December, 2017 he purchased gold worth Rs. 8,40,000 and sold the same in August, 2019 for Rs. 9,00,000. At the time of sale of gold, he paid brokerage of Rs. 10,000 and bank charges of Rs.500 for valuation of gold (avalling). What is the amount of taxable capital gain?

We need to remember that the costs that are relevant to the transaction can be deducted from the overall profit. That is the point here. But first what kind of capital asset is this? Gold was purchased in December, 2017 and sold in August, 2019, i.e., sold after holding it for a period of less than 36 months and, hence, the gain will be short-term capital gain. The tax on the STCT gain will be computed as follows:

Particulars

Calculation of STCG

Full value of consideration (i.e., Sales value of the asset)

Rs. 9,00,000

Less: Expenditure incurred wholly and exclusively in connection with transfer of capital asset (E.g., brokerage, commission, etc.)

Rs. 10,500

Net Sale Consideration

Rs. 8,89,500

Less: Cost of acquisition (i.e., the purchase price of the capital asset)

Rs. 8,40,000

Less: Cost of improvement (i.e., post purchases capital expenses on improvement of capital asset )

Rs. 0

Short-Term Capital Gains

Rs.49,500

Since this is a normal STCG income of Rs.49,500, it will be included in Pandit’s total income and will be taxed based on his applicable rate of tax. For example, if Pandit is falling in the 30% tax bracket and his taxable income is below Rs.50 lakhs then his tax impact will be Rs.16,988 (49,500 * 34.32%). In the above case, Pandit pays 30% tax plus 4% cess plus 10% surcharge since his income is above Rs.50 lakhs. That works out to 34.32% effective tax rate which is what has been applied in the above case.