STCG Tax Rate Hiked to 20%, LTCG to 12.5% in Budget 2024

Budget 2024: Major Changes to Capital Gains Taxation

Finance Minister Nirmala Sitharaman has unveiled significant updates to the capital gains taxation regime in Budget 2024. Here's a detailed breakdown of the proposed changes:

1. Short-Term Capital Gains (STCG) Tax:

   • Listed Equity: The tax rate on short-term gains from listed equities will rise to 20%, up from the current 15%.
   • Other Assets: Gains from other financial assets and non-financial assets will continue to be taxed at their respective rates.

2. Long-Term Capital Gains (LTCG) Tax:

   • All Assets: Long-term gains on both financial and non-financial assets will now be taxed at a rate of 12.5%. This represents a 2.5% increase for listed equity (up from 10%) but a significant reduction of 7.5% for other assets such as real estate and unlisted equities.
   • Indexation Benefit: The indexation benefit, which adjusts for inflation, will no longer be available for long-term capital gains across all asset categories.

3. Exemption Limit:

   • The annual exemption limit for capital gains on listed equities and equity-oriented mutual funds will be raised to ₹1.25 lakh from the current ₹1 lakh.

4. Holding Period for Classification:

   • Listed Financial Assets: Assets held for over 12 months will be classified as long-term.
   • Unlisted Financial Assets and Non-Financial Assets: These must be held for more than 24 months to qualify as long-term.
   • Unlisted Bonds, Debentures, Debt Mutual Funds, and Market-Linked Debentures: These will be taxed on capital gains at applicable rates, regardless of the holding period.

Shalini Jain, Tax Partner at People Advisory Services, EY India, explains, "The 2024 Budget introduces key changes to capital gains tax, effective from July 23, 2024. The holding period for classifying assets as long-term has been adjusted: over 12 months for listed financial assets and over 24 months for unlisted financial and non-financial assets. The short-term capital gains tax on equity shares and equity funds is now 20%, while other short-term gains remain at their applicable rates. The tax rate for long-term gains has been revised accordingly."

Current Tax Rules for LTCG and STCG: Capital gains or losses are categorized as short-term or long-term based on the asset type and holding period. For example, equity shares listed on a stock exchange are classified as long-term if held for over 12 months.

Current Holding Period Rules:

• Short-Term Capital Gains (STCG): Applicable when assets are sold before completing the minimum holding period.
• Long-Term Capital Gains (LTCG): Apply when assets are held beyond the specified holding period.

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