July 23, 2024

Budget 2024 Major Changes in Capital Gains Taxation - A Major Blow for Investors

In a significant update from the Budget 2024, Finance Minister Nirmala Sitharaman has announced substantial changes in the capital gains taxation regime. These changes are set to impact investors across various financial and non-financial assets. Here's a detailed breakdown of the proposed modifications:

Key Highlights of the Budget 2024 Changes

1. Increased Short-Term Capital Gains (STCG) Tax Rate

The tax rate for short-term capital gains on certain assets will now be 20%.

STCG on all other financial and non-financial assets will continue to be taxed at the applicable income tax rate.

2. Hike in Capital Gains Exemption Limit

The exemption limit for capital gains has been increased to ₹1.25 lakh per year.

3. Long-Term Capital Gains (LTCG) Tax Rate Hike

The LTCG tax rate on specified assets has been increased to 12.5%.

Continued Taxation for Unlisted Bonds and Debt Mutual Funds

Unlisted bonds and debt mutual funds will continue to be taxed at the applicable rate.

Simplification of Capital Gains Taxation

According to the Memorandum of the Finance Bill 2024, the taxation of capital gains is set to be rationalised and simplified with three main components:

Standardised Holding Periods

There will now be only two holding periods for determining capital gains: 12 months and 24 months.

For all listed securities, the holding period is 12 months.
For all other assets, the holding period is 24 months.
The holding period for bonds, debentures, and gold will be reduced from 36 months to 24 months.
For unlisted shares and immovable property, the holding period remains at 24 months.

Revised Short-Term Capital Gains Tax Rate

The STCG tax rate under section 111A for STT-paid equity shares, units of equity-oriented mutual funds, and units of business trusts will be increased to 20% from the current 15%.

Other short-term capital gains will continue to be taxed at the applicable rate.

Unified Long-Term Capital Gains Tax Rate

The LTCG tax rate is set to be 12.5% across all asset categories.

An exemption of gains up to ₹1.25 lakh is proposed for long-term capital gains under section 112A on STT-paid equity shares, units of equity-oriented funds, and business trusts.

Indexation benefits under the second proviso to section 48 for calculating long-term capital gains will be removed, simplifying the computation process for taxpayers and tax administration.

Current Tax Rules for LTCG and STCG

Capital gains or losses are categorized as short-term or long-term based on the nature of the asset and the holding period.

For listed equity shares sold within 12 months, gains or losses are short-term. If sold after 12 months, they are long-term.

For unlisted equity shares sold within 24 months, gains or losses are short-term. If sold after 24 months, they are long-term.

These changes represent a major blow for investors in India, particularly affecting high net worth individuals who previously benefited from lower tax rates. The simplification and rationalization aim to create a more streamlined and transparent tax regime, though the increased rates may impact investment strategies.

Stay updated with all the latest financial and tax-related news on our website. For detailed guidance on how these changes may affect your investments, feel free to reach out to our expert team at Dinesh Aarjav & Associates.