The finance minister Nirmala Sitharaman presented the Union Budget 2024 today and announced several changes aimed at simplifying the taxation of capital gains. These changes were actually long due given how capital gains were taxed up until now.
What were the major announcements?
Short term gains on certain financial assets to attract a tax rate of 20%
Long term gains on all financial and non-financial assets to attract a tax rate of 12.5%. Also, indexation benefit will not be allowed
Exemption limit of long term capital gains on certain financial assets increased to â‚ą1.25 lakh per year
Listed financial assets held for more than a year will be classified as long term
Unlisted financial assets and all non-financial assets should be held for at least two years to be classified as long term
Unlisted bonds, debentures, debt mutual funds and market-linked debentures will attract tax on capital gains at applicable rates, irrespective of holding period
But, given that there are so many types of assets, which of these changes will affect what asset can be quite confusing. So, I’ll try to provide some clarity on this.
Listed shares and equity mutual funds: LTCG tax has been increased to 12.5%, and STCG will be taxed at 20%, marking a 2.5% and 5% increase from the current rates respectively. The holding period remains unchanged at 12 months.
Unlisted and foreign shares: LTCG will be taxed at 12.5%, while STCG remains unchanged and will be taxed at applicable slab rate. The holding period to classify gains as long-term or short-term is 24 months.
Listed bonds: STCG taxation remains same as per the applicable slab rate while LTCG will now be taxed at 12.5%.
Debt ETF/mutual funds: Gains from specified mutual funds investing over 65% in debt and money-market instruments will be taxed at slab rates irrespective of the holding period.
Real estate: STCG tax is still taxed as per the applicable slab rates, while LTCG tax is reduced to 12.5% from what was 20% earlier.
Physical gold: Similar to real estate, LTCG from gold will now be taxed at 12.5%, and STCG according to slab rates. The holding period for LTCG is reduced from 36 months to 24 months.
These changes will be effective from 23rd July 2024 onwards. This means that if you have realised gains before this date, taxes will be applicable as per the old rules.
I read that these changes are effective from July 23 , 2024. Is that correct ?
If I have ST capital gains of 10 L till July 23, and then ST capital loss of 10L between July 24 and March 31, resulting in no profit or loss for the entire year, what will my tax liability be ? Will my ST capital gains tax be 1.5 L and I will have to carry forward the 10L loss or can the loss be used to offset the profits this year before the budget announcement ?
It is a really strange situation where two different tax regimes will be in effect during the same financial year before and after budget announcement and it will be a nightmare preparing taxes next year and also undermine confidence in the stability and predictability of the tax environment . Shouldn’t the government give some time to individual taxpayers to plan their taxes like it is giving to companies for the changes in taxation on the buyback of shares which will be effective only after October 1 ? Shouldn’t the changes have been announced before the beginning of the tax year and shouldn’t they ideally be made effective from the next financial year ? I hope the ICAI and other bodies will make these representations to the government .
In budget 2024 it is announced that indexation from real estate will be removed. So if I bought a property in Aug 2015 and if I sell in Aug 2024, can I apply indexation up to Mar 2024? Or completely indexation should not be used?
If the house is sold after 23rd July 2024, the indexation benefit will not be available. However, you’ll have to pay 12.5% tax as per the new rates instead of the 20% tax which was applicable earlier.
What if debt mutual funds are purchased before 31st March 2023. Will they be eligible for indexation benefit? This benefit was available post last year’s budget FY 23-24. What happens now?
Can anyone please confirm if I will be able to offset capital gains realised between April 1 and July 22 with capital losses realised between July 23 and March 31 for a) listed stocks and b) unlisted ( foreign ) stocks ?
Under the new regime, the tax rebate is not applicable on STCG taxed at special rates. However, if you opt for the old regime and total income is below â‚ą5L, you get a rebate of up to â‚ą12,500.
Yes, as all these transactions take place in the same financial year, you’ll be able to offset the losses. STCL can be set off against both STCG and LTCG, however, LTCG will only be adjusted against LTCG.
How will the tax rate be determined in such cases ?
Say, I have 50 lakhs listed LTCG until July 23 and 40 lakhs in listed LT capital losses between July 23 and March 31.
I was under the impression that next year in the ITR we would be asked to report capital gains before July 23 and after July 23 in two different categories. In case where there is either profit or loss in both periods the calculation of tax /carryforward is straightforward .
However, in the case I described , will the 40 L of loss I report for the later period be automatically “carried backward” to the earlier period to offset the profit until July 23 ? So, will I effectively be taxed at a rate of 10% on the adjusted profit of 10L in the earlier period after carrying back the loss from the later period ?
My concern is that, since the majority of taxpayers will not face this situation, if the ITR system is implemented without the provision to "carry back " losses to the earlier period within the financial year as described above, then I will have a tax liability of 50L*10% = 5 L for the current FY and be required to carry forward the 40L of losses into future years, which I may not be able to utilise before they expire. Is this concern unfounded , since usually losses incurred in a later period are not allowed to offset profits realised in an earlier period ?
This is not purely a hypothetical situation and I often realise capital losses towards the end of the year to actively manage my tax exposure , so I would really appreciate it if you could clarify this issue.
Hello @Surbhi_Pal , what about off-market transfer, the short term capital gain for off market transfer for listed shares will also be continued to be treated as per individual’s slab rate and not 20%, right?
