Capital gains exemption limit hiked to Rs 1.25 lakh; STCG tax rate changed to 20%, LTCG hiked to 12.5% on certain assets in Budget 2024
The finance minister Nirmala Sitharaman has proposed following changes in the capital gains taxation regime:1. Short term capital gains on certain assets will attract 20% and all other on financial and non-financial assets will be taxed at income tax rate applicable
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2. Hike in the limit capital gains exemption limit to Rs 1.25 lakh per year.
3. LTCG on specified certain assets will be hiked to 12.5%
4. Unlisted bonds, debt mutual funds will continue to be taxed at applicable tax rate.
According to Memorandum of the Finance Bill 2024, "The taxation of capital gains is proposed to be rationalized and simplified. There are three components to this simplification. Firstly, it is proposed that there will only be two holding periods, 12 months and 24 months, for determining whether the capital gains is short-term capital gains or long term capital gains. For all listed securities, the holding period is proposed to be 12 months and for all other assets, it shall be 24 months. Accordingly, amendment is proposed in clause (42A) of section 2 of the Act. Thus units of listed business trust will now be at par with listed equity shares at 12 months instead of earlier 36 months. The holding period for bonds, debentures, gold will reduce from 36 months to 24 months. For unlisted shares and immovable property it shall remain at 24 months."
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More NewsMemorandum further adds, "Secondly, the rate for short-term capital gain under provisions of section 111A of the Act on STT paid equity shares, units of equity oriented mutual fund and unit of a business trust is proposed to be increased to 20% from the present rate of 15% as the present rate is too low and the benefit from such low rate is flowing largely to high net worth individuals. Other short-term capital gains shall continue to be taxed at applicable rate."
Memorandum further adds, "The rate of long-term capital gains under provisions of various sections of the Act is proposed to be 12.5% in respect of all category 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. However, an exemption of gains upto 1.25 lakh (aggregate) is proposed for long-term capital gains under section 112A on STT paid equity shares, units of equity oriented fund and business trust, thus, increasing the previously available exemption which was upto 1 lakh of income from long term capital gains on such assets. For bonds and debentures, rate for taxation of long-term capital gains was 20% without indexation. For listed bonds and debentures, the rate shall be reduced to 12.5%. Unlisted debentures and unlisted bonds are of the nature of debt instruments and therefore any capital gains on them should be taxed at applicable rate, whether short-term or long-term. It is proposed accordingly."
"Simultaneously 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 property, gold and other unlisted assets. This will ease computation of capital gains for the taxpayer and the tax administration," says the memorandum.
What are the current tax rules for LTCG, STCG?
As per income tax rules, when an individual sells a capital asset, he/she can earn capital gains or losses. These capital gains or losses are categorised as short term or long-term depending on the nature of the capital asset and the period of holding specified for the asset for the purpose of this categorisation.
For instance, if the equity shares listed on a stock exchange are sold before 12 months are completed from date of purchase, then capital gains or loss will be categorised as short-term. If the listed equity shares are sold after completion of 12 months, then capital gains or loss will be categorised as long term. On the other hand, for unlisted equity shares, if sold before 24 months, the gains or loss will be called short term. If the unlisted equity shares are sold after 24 months, then gains or loss will be called long term.
Long-term capital gains, long term capital losses, short-term capital gains, and short term capital losses are abbreviated as LTCG, LTCL, STCG and STCL respectively.
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This story originally appeared on: India Times - Author:Faqs of Insurances
