Worked Example
LTCG vs STCG: which builds more wealth over 5 years?
Scenario
Investor comparing tax on equity sale at 1 year vs 11 months holding
Inputs
- Years
- 5
- Amount INR
- 5,00,000
- LTCG tax %
- 12.5
- STCG tax %
- 20
- LTCG return %
- 12
- STCG return %
- 12
Calculation
- 1.
LTCG effective post-tax rate
12% × (1 − 12.5% tax) → 10.5%
- 2.
STCG effective post-tax rate
12% × (1 − 20% tax) → 9.6%
- 3.
LTCG corpus at year 5
₹5L × (1+0.105)^5 → ₹8.24 L
- 4.
STCG corpus at year 5
₹5L × (1+0.096)^5 → ₹7.91 L
- 5.
Wealth difference
|823723 − 790720| → ₹33,003
Conclusion
LTCG wins by approximately ₹0.3 lakh over 5 years — driven by tax treatment.
Tradeoffs
Post-tax real returns matter more than nominal headline rates. STCG loses more to taxation. Risk profiles differ too — guaranteed vs market-linked. Adjust for risk tolerance.