Union Budget 2024 has changed the capital gains tax treatment for almost all asset classes. Both the holding periods for short-term capital gains (STCG) and long-term capital gains (LTCG) have been revised in Budget 2024. Be it investment into equity, debt, gold, mutual fund, or property, the changes announced in Budget 2024 will impact all assets you hold. ET Wealth Online explains the new capital gain tax regime after Budget 2024 and how it will affect investors.
The capital gains are classified as short-term or long-term based on the holding period of the capital asset. Earlier, there were different holding periods for various capital assets to qualify capital gains as STCG or LTCG. For instance, capital gains from listed equity shares were classified as long-term if they are held for more than 12 months, whereas gains from unlisted bonds were classified as long-term if they were held for more than 36 months.
Budget 2024 has announced there will be only two holding periods — 12 months and 24 months to determine whether capital gains arising from the assets are short-term or long-term. For all listed assets, the holding period is proposed to be 12 months to qualify the gains as long-term capital gains. This will apply to a) Listed stocks, b) Listed bonds, c) Equity ETFs, d) Gold ETFs, e) Bond ETFs, f) Real estate investment trusts (REITs), and g) Infrastructure investment trusts (InvITs).
Here the term 'listed' means assets listed on the recognised stock exchanges in India.
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If you are wondering, how capital gains from your equity mutual funds will be taxed, keep in mind that Section 2 (42A) first proviso allows a long-term holding period of 12 months for equity mutual funds.
For all other assets, the holding period will be 24 months to qualify the gains as long-term capital gains. This includes a) real estate, b) gold, c) unlisted shares (shares listed abroad will also be considered unlisted), d) gold mutual funds, e) debt mutual fund units bought on or before March 31, 2023, and f) foreign equity funds.
In the case of debt mutual funds, the holding period to qualify as a long-term asset is now reduced from 36 months to 24 months after Budget 2024. However, there is no longer any distinction between tax charged on long-term gains and short-term gains on debt mutual funds as they are taxed as per tax slab rates applicable to the investor.
The gains from the following investments will qualify as short-term capital gains and be taxed at the tax slab and rate applicable to the investor, says Abhishek Kumar, a SEBI RIA and Founder of SahajMoney.com.
a) Debt funds units (bought after March 31, 2023)
b) Market linked debenture
c) An unlisted bond or debenture that is sold or redeemed on or after July 23, 2024.
Budget 2024 has increased the limit of exemption of capital gains on listed equity and equity oriented mutual funds to Rs 1.25 lakh per annum from the existing Rs 1 lakh.
Short-term capital gains from all assets, except listed equity shares and equity mutual funds, will be taxed according to the tax slab and rate applicable to the investor. Budget 2024 has hiked short-term capital gains from equity shares and equity mutual funds to 20%. It will be applicable, irrespective of the tax slab.
Budget 2024 has mentioned long-term capital gains will be taxed at a flat rate of 12.5% without indexation. CA Suresh Surana says, "The rate of long-term capital gains under provisions of various sections is proposed to be kept at 12.5% in respect of all categories of assets. This rate earlier was 10% for STT paid listed equity shares, units of equity-oriented fund, and business trust under Section 112A and for other assets, it was 20% with indexation under Section 112."
He further adds, "With rationalisation of rate to 12.5%, indexation available under second proviso to Section 48 is proposed to be removed for calculation of any long-term capital gains which is presently available for a property, gold and other unlisted assets."
