New LTCG tax on stocks after Budget 2024: If gains are less than Rs 2.25 lakh in a year, you pay lower tax; here's how This is because even though the tax rate for long-term gains has been hiked from 10% to 12.5%, the exemption threshold has also been raised from Rs.1 lakh to Rs.1.25 lakh
Raj Khosla
A Chartered Accountant qualified in 1979, Khosla worked overseas with KPMG for 2 years and practiced professionally for a decade before founding MyMoneyMantra 1989. He is a highly regarded figure in the financial products distribution arena and advises several banks on their distribution strategy.
Are you worried that the Budget will increase tax on capital gains from stocks and equity funds? While higher tax will certainly be a dampner for investors with large portfolios, investors with smaller portfolios may actually gain from the proposed change. If the long-term capital gains from stocks and equity funds are up to Rs.2 lakh in a financial year, your tax liability will now be lower. This is because even though the tax rate for long-term gains has been hiked from 10% to 12.5%, the exemption threshold has also been raised from Rs.1 lakh to Rs.1.25 lakh.
How Budget will impact tax on LTCG from stocks and equity funds
This increase in exemption means that those with gains of Rs.1.25 lakh in a year will save Rs.2,600 in tax. This gain in tax progressively reduces as the gains increase. However, even investors with gains of up to Rs.2 lakh in a year will pay less tax. The inflection point comes at Rs.2.25 lakh. If the gains exceed Rs.2.25 lakh in a year, the tax will be higher than before (see table).
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Though investors with long-term capital gains have the opportunity to avoid tax, those with short-term gains have no solace. The Budget has increased the tax on short-term gains from 15% to 20%. For every Rs.1 lakh gain, the investor will shell out an additional tax of Rs.5,200. Arguably, this is not a negative step because the higher tax will make short-term trading and speculation less attractive and discourage punters and day traders. It could also make investors take a longer-term view and remain invested for at least one year to escape high tax.
Higher tax on STCG will pinch speculators
The Budget has also proposed hiking the securities transaction tax (STT) on trading in futures and options (F&O). The STT on option trading will be increased from 0.0625% to 0.1% of the option premium, while futures STT will go up from 0.0125% to 0.02% of the trading price. Even so, it is unlikely to dissuade punters from dabbling in this dangerous segment.
The Author is RAJ KHOSLA MANAGING DIRECTOR OF MYMONEYMANTRA.COM
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This story originally appeared on: India Times - Author:Faqs of Insurances
