Short-term Traders to Be Taxed 50% More on Capital Gains

Short-term traders with a holding period of less than a year will now be taxed 7.5% on capital gains. The Finance Minister's budget speech for the fiscal year 2078/79 has increased the tax rate on capital gains by 50% for an individual investors with a holding period of fewer than 365 days.

The tax rates update is effective from Shrawan 01, 2078. 

All days are counted from the day an investor purchases a security, even non-trading days, in order to calculate the holding period. Meanwhile, the capital gain tax for investors with a holding period longer than 365 days has been kept the same, i.e. at 5%.

This is the first time the government has decided to levy a capital gain tax based on the holding period. With this, the government has now made a distinction between short-term traders and long-term investors.

A capital gains tax is a type of tax applied to the profits earned on the sale of an asset. In the context of the capital market, this translates to the tax on gains made by the sale of shares of a company, units of a mutual fund, or other securities.

As a comparison, the capital gains tax for short holding periods in the US market is the same as their ordinary tax rate and can be up to 37%. Meanwhile, gains made on stocks held for more than a year will incur the long-term capital gains tax, which maxes out at 20% but is usually no higher than 15% for most people. In fact, the tax to be paid varies based on the investor's income threshold, with higher tax rates levied on high-net-worth investors.