Budget 2024: A New Chapter for Capital Gains Tax
The Union Budget 2024 ushered in significant changes to the taxation of capital gains in India. These modifications have far-reaching implications for investors across various asset classes. Let’s delve into the key alterations:
Harmonisation of Long-Term Capital Gains (LTCG) Tax Rate
- Uniform rate:The most prominent change is the introduction of a uniform LTCG tax rate of 12.5% for all asset classes, including property, gold, and equity. Previously, these assets had different tax rates
- No indexation benefit:The government has eliminated the indexation benefit, a provision that allowed taxpayers to adjust the purchase price of an asset for inflation. This means higher taxable gains.
What were the major the major announcements
Short term gains on certain financial assets shall henceforth attract a tax rate of 20 per cent, while that on all other financial assets and all non-financial assets shall continue to attract the applicable tax rate.
Long term gains on all financial and non-financial assets, on the other hand, will attract a tax rate of 12.5 per cent.
For the benefit of the lower and middle-income classes, I propose to increase the limit of exemption of capital gains on certain financial assets to ₹ 1.25 lakh per year.
Listed financial assets held for more than a year will be classified as long term, while unlisted financial assets and all non-financial assets will have to be held for at least two years to be classified as long-term.
Unlisted bonds and debentures, debt mutual funds and market linked debentures, irrespective of holding period, however, will attract tax on capital gains at applicable rates.
( Refer : https://www.indiabudget.gov.in/)
Impact on Different Asset Classes
Property:
While the LTCG tax rate has reduced from 20% to 12.5%, the removal of indexation might offset this benefit, especially for older properties.
Gold:
Similar to property, the lower tax rate is counterbalanced by the absence of indexation.
Equity:
While the LTCG tax rate has increased from 10% to 12.5%, the exemption limit has been raised from Rs. 1 lakh to Rs. 1.25 lakh.
Short-Term Capital Gains (STCG) Tax
Higher rate:
The STCG tax rate on equity-related investments has been increased from 15% to 20%.
Asset Class | Holding Period | STCG | LTCG |
| Shares/ Equity (Listed) | 12 months | 20% | 12.5% |
| Equity MF | 12 Months | 20% | 12.5% |
| Bonds ( Listed ) | 12 Months | 20% | 12.5% |
| REITs/ InVITs | 12 Months | 20% | 12.5% |
| Silver/ Gold ETF | 12 Months | Slab | 12.5% |
| Gold Funds | 24 Months | Slab | 12.5% |
| Stock( Unlisted ) | 24 Months | Slab | 12.5% |
| Foreign Shares | 24 Months | Slab | 12.5% |
| Overseas Equity Fund | 24 Months | Slab | 12.5% |
| Gold | 24 Months | Slab | 12.5% |
| Real Estate | 24 Months | Slab | 12.5% |
| Debt MF/ MLD | NA | Slab | Slab |
| Debt ETF | NA | Slab | Slab |
| Bonds ( Unlisted) | NA | Slab | Slab |
Key Takeaways
Simplification:
The new regime aims to simplify the tax structure for capital gains.
Higher tax burden:
For many investors, especially those with older assets, the overall tax burden might increase due to the removal of indexation.
Strategic planning:
Investors need to carefully evaluate the impact of these changes on their portfolios and investment strategies.
Conclusion
The changes in capital gains tax introduced in Budget 2024 mark a significant departure from the existing tax regime. While the intent might be to simplify the tax structure, the practical implications for investors are complex. It is crucial to consult with a tax professional to understand the full ramifications of these changes on your personal financial situation.
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