When you are a new investor, you will come across the terms LTCG and STCG. Do you know what these two terms stand for? LTCG is long-term capital gain, and STCG is short-term capital gain. To make your decision regarding investment more prominent, you need to understand both types of investment quite deeply, along with the taxation rates. To explore everything about capital gains in brief detail, stay tuned with us till the end. 

What Is Long-Term Capital Gain?

Capital gain is a certain percentage of gain on capital investment. When we are talking about long-term capital gain, it indicates a particular time. In simple language, the LTCG or long-term capital gain refers to the profits of a specific investment that you have held for a long time. Depending on the period of holding, your percentage of taxation will also vary; however, in long-term gains, the tax rate is comparatively lower than the short-term gains.

Characteristics Of LTCG

1. One of the basic characteristics of these investments is the holding time. If you are investing in any asset to get a long-term capital gain then you have to hold it for more than one year i.e., 365 days. 
2. Some specific types of assets are counted for LTCG. for example, real estate, gold bonds, mutual funds, and stocks as well.

Benefits Of LTCG

1. If somebody is looking for stability in this financial market or wants to minimise their risk factors of investment, then long-term capital gain certainly encourages that concept.
2. LTCG allows compounding growth, which means you can reinvest your gain for further returns, but that will also be taxable depending on the period of holding. 
3. One of the basic reasons people choose to invest in assets that give LTCG is because of the lower tax rate compared to the investment that gives short-term capital gain to the investors.
4. One can be motivated to stay invested for longer due to LTCG but proper strategies like diversification and reinvestment should be followed
5. An investment that gives long-term capital gain maintains a diversifying portfolio. Therefore the risk factors are reduced and the investors experience a balanced growth. 

What Is Short-Term Capital Gain?

Short-term capital gain refers to the gain on investment within a short period. A period of redemption of less than 12 months is termed as short-term. In some asset classes, this period can also be 24 months short periods. The duration could be one year or less than one year. The rate of tax on this kind of gain is always higher, so before investing, you must ensure that.

Characteristics Of STCG

1. The first and foremost characteristic of short-term capital gain is always for a short time duration.
2. When it comes to short-term capital gain, people mostly invest in stocks or money market instruments. 

Implication Of STCG

1. As the investors experience a visible gain from their investment within a short period, they get the chance to capitalize on any market conditions.
2. Investors can quickly make changes whenever they feel like a downfall in the market. 
3. If you wish, you can reinvest your return in the different assets. Well, that is also taxable. 
4. You can convert your asset into cash quite easily, as most short-term investments have higher liquidity.

Taxation Rules For LTCG & STCG According To The Budget 2024

Depending on the union budget of 2024, some changes have been made to the returns you receive from a short- or long-term investment. Here’s a quick look at the rules,

1. For all types of long-term capital gain, the investors need to pay a 12.5% tax. In the case of listed shares or equity-mutual funds, LTCG is charged for over and above 1.25L
2. If you have made any equity investment to get a short-term capital gain then the rate of tax will be 20%, previously it was 15%. However, the other assets will be following the slab rate for individual taxpayers.
3. According to the budget for this year, there will be only two holding periods for the long-term and short-term investors, either for 12 months or more than that. However, the rates for long-term capital gain for selling gold, land, or any unlisted shares have been reduced to 12.5%, and the indexation is still available for real estate properties under the old tax regime. Previously the percentage for selling those assets was 20%.
4. If any investors make a profit from debt ETF, unlisted bonds, debt mutual funds, etc will not be included in the list of short-term capital gains no matter for how long you are holding it. Gains from these funds will be taxed as LTCG as per the investor’s income tax slab.  
5. The security transaction tax (STT) rate is now changed for futures up from  0.0125% to 0.02% and for options up from 0.0625% to 0.1%. For the indexing and equity traders involved in Future & Option transactions, this rule will increase the tax burden.

Conclusion 

All investors of mutual funds, bonds, or any other investment must have a deep understanding of the concept of long-term capital gain and short-term capital gain. Otherwise, the investment will become confusing for you. Aside from the concept, understanding the taxation rate is equally needed. We have tried to represent the concept of both types of gains in the easiest way, so we hope it significantly helps you to become a confident investor even in a volatile market. When you strategically hold an investment, it helps you lower the tax burdens. Last but not least, consulting your financial advisor can be the best solution before finalising any decision regarding investments.

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Disclaimer – This article is for educational purposes only and does not intend to substitute expert guidance. Mutual fund investments are subject to market risks. Please read the scheme-related document carefully before investing.