As declared in the Union Budget 2024, the capital gains tax treatment for various types of assets has been changed.
The holding periods for short-term capital gains (STCG) and long-term capital gains (LTCG) have also been changed. This change will impact equity, debt, gold, mutual funds, and property investments.
Let’s look at the latest capital gains tax rates, and holding period changes of various assets.
First, we must understand that taxation on asset classes depends on whether the gain is long-term or short-term. However, earlier, the definition of short & long-term was different and the holding period was also different.
Accordingly, to ease the capital gain process, the Government has divided all the assets into only two holding periods i.e. 12 months & 24 months.
Gains from a few assets are considered long-term if held for more than 12 months. On the other hand, gains from a few assets are considered as long-term if held for more than 24 months.
Bifurcation is as under,
| Long-Term (More than 12 Months) | Long-Term (More than 24 Months) |
| Listed Equity Shares (Stocks) (STT Paid) | Unlisted Equity Shares |
| Equity Mutual Fund | Property |
| Listed Bonds | Gold/ Gold Mutual Funds / Gold ETFs |
| REITs & INVITS | Other Mutual Funds, Fund of Funds/ International Funds, International Stocks |
Short Term:
It means if you hold stocks/Equity Mutual Funds /Listed Bonds & REIT/INVITS for less than 12 months, it will be considered as short term.
Similarly holding unlisted assets/Gold/Gold MF/ETF for less than 24 months will be considered as short-term.
Tax Rates
| Assets | Short-Term Capital Gain | Long-Term Capital Gain |
| Listed Equity Shares (STT Paid) | 20% | 12.50% (exempt up to 1.25 Lakhs) |
| Equity Mutual Funds | 20% | 12.50% (exempt up to 1.25 Lakhs) |
| REIT/INVITES | 20% | 12.50% |
| Unlisted Equity Shares | As per the Slab Rate | 12.50% |
| Listed Bonds | As per the Slab Rate | 12.50% |
| Property | As per the Slab Rate | 12.50% |
| Gold/ Gold MF/ Gold ETF | As per the Slab Rate | 12.50% |
| Other Mutual Funds, Fund of Funds/ International Funds, International Stocks | As per the Slab Rate | 12.50% |
Few Important Points:
- The holding period is now only 12 & 24 months
- Unlisted Bonds/Debentures/Debt Mutual Funds (>65% in Debt Securities) are taxed at slab rates irrespective of the holding period. It means it is just like your Bank FD.
Changes in Tax Rates for Capital Gain:
- Short-term capital gain is charged at slab rate except STCG on STT paid securities (Equity/ Equity MF / REIT & INVITS) has been increased from 15% to 20%. For all other assets, STCG is taxed at a slab rate.
- Long-term capital gain for all assets is taxed at 50%. No indexation benefit is available. (Earlier for the Equity Asset class LTCG was 10%).
- The exemption limit for LTCG on Equity increased from Rs. 1 Lakh to Rs. 1.25 Lakhs for the assessment year.
- For Real Estate, please note that the provision regarding availing the benefit of Fair Market Value (FMV) of assets as of 01.04.2001 at cost while selling the asset, is still available even after the changes made in the budget.
Capital Gain of Mutual Funds:
| Assets | Holding Period | STCG | LTCG |
| Equity MF | 12 Months | 20% | 12.50% (exempt up to Rs. 1.25 Lakhs) |
Specified MF/ Debt MF | |||
Acquired before 01.04.2023– Sold up to 22.07.24 – Sold on or after 23.07.24 Acquired after to 01.04.2023 | 36 Months 24 Months Does not matter | Slab Rate Slab Rate Slab Rate | 20% with indexation 12.50% Slab Rate |
| Slab Rate | Slab Rate | ||
Hybrid MF (35-65% Indian Equity) | |||
| – Sold up to 22.07.24 – Sold on or after 23.07.24
| 36 Months 24 Months | Slab Rate Slab Rate | 20% with indexation 12.50% |
Other MF/ Gold MF/ Gold ETF/International Funds & Stocks | |||
| Acquired before 01.04.2023 – Sold up to 22.07.24 – Sold on or after 23.07.24
| 36 Months 24 Months
| Slab Rate Slab Rate
| 20% with indexation 12.50%
|
| Acquired after 01.04.2023 – Sold up to 31.03.2025 – Sold on or after 01.04.2025
| Does not matter 24 Months | Slab Rate Slab Rate
| Slab Rate 12.50% |
Now, let’s see one example of the impact of increased LTCG on Equity and how it will impact different LTCG:
| Particulars | Before Budget | After Budget (Now) |
| Long Term Capital Gain (Equity) | 1,50,000 | 1,50,000 |
| Less: Exemption | 1,00,000 | 1,25,000 |
| Taxable LTCG | 50,000 | 25,000 |
| Tax Rate | 10% | 12.50% |
| Tax Liability | 5,000 | 3,125 |
| Tax Saved | — | 1,875 |
| Particulars | Before Budget | After Budget (Now) |
| Long Term Capital Gain (Equity) | 2,00,000 | 2,00,000 |
| Less: Exemption | 1,00,000 | 1,25,000 |
| Taxable LTCG | 1,00,000 | 75,000 |
| Tax Rate | 10% | 12.50% |
| Tax Liability | 10,000 | 9,375 |
| Tax Saved | — | 625 |
| Particulars | Before Budget | After Budget (Now) |
| Long Term Capital Gain (Equity) | 5,00,000 | 5,00,000 |
| Less: Exemption | 1,00,000 | 1,25,000 |
| Taxable LTCG | 4,00,000 | 3,75,000 |
| Tax Rate | 10% | 12.50% |
| Tax Liability | 40,000 | 46,875 |
| Excess Tax Liability | — | 6,875 |
| Particulars | Before Budget | After Budget (Now) |
| Long Term Capital Gain (Equity) | 10,00,000 | 10,00,000 |
| Less: Exemption | 1,00,000 | 1,25,000 |
| Taxable LTCG | 9,00,000 | 8,75,000 |
| Tax Rate | 10% | 12.50% |
| Tax Liability | 90,000 | 1,09,375 |
| Excess Tax Liability | — | 19,375 |
As observed, if your LTCG is more than Rs. 2.00 Lakhs (approx.), you will have to bear the tax burden after a change in rules in the Budget.
Example of change in taxation of Capital Gains from Property:
| Particulars | Before Budget | After Budget (Now) |
| Sale Value of Property | 1,30,00,000 | 1,30,00,000 |
| Cost (Bought in July 2021) | 90,00,000 | 90,00,000 |
| Indexed Cost | 1,03,05,994 | N.A. |
| LTCG | 26,94,006 | 40,00,000 |
| Tax Rate | 20% | 12.50% |
| Tax Liability | 5,38,801 | 5,00,000 |
| Tax Saved | — | 38,801 |
| Particulars | Before Budget | After Budget (Now) |
| Sale Value of Property | 2,00,00,000 | 2,00,00,000 |
| Cost (10 Years holding period) | 1,00,00,000 | 1,00,00,000 |
| Indexed Cost | 1,51,25,000 | — |
| LTCG | 48,75,000 | 1,00,00,000 |
| Tax Rate | 20% | 12.50% |
| Tax Liability | 9,75,000 | 12,50,000 |
| Excess Tax Liability | — | 2,75,000 |
Please note that if you are selling the property that you bought a few years back i.e. 5-6 years back (not very old property) and the gain is not significant, this change in tax from 20% to 12.50% will be beneficial to you.
But the property is very old and the gain is signification, you will end up paying higher taxes despite the decrease in tax rate because of cancelation in indexation.
In conclusion, long-term capital gains are the new normal. However, even after all taxes, equity has the potential to deliver inflation-beating returns and may outperform most other savings and investing alternatives.
Investing wisely and with discipline will take care of any such concerns that occasionally arise.