Budget 2024: Potential Changes to Capital Gains Taxes

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Budget 2024: Potential Changes to Capital Gains Taxes
  • By Divya Singhal
  • 31st January, 2024
  • Finance

The government may revise capital gains tax policies, altering holding periods and tax rates. For listed equity shares, Short-Term Capital Gains (STCG) tax applies if sold within 12 months. Long-Term Capital Gains (LTCG) tax, after 12 months, incurs a 20% tax with indexation or 10% without.

Unlisted shares entail a 24-month STCG period. STCG is taxed according to your income bracket, while LTCG (post 24 months) incurs a 20% tax with indexation.

Debt Investment

The Finance Act 2023 heightened capital gains tax on debt mutual funds. Gains from funds with under 35% equity assets don’t enjoy LTCG or indexation benefits. Previously, gains from debt funds held over three years faced a 20% LTCG tax post-indexation.

Listed debt securities sold on exchanges undergo a 12-month threshold for capital gains tax. STCG applies if sold before 12 months; otherwise, LTCG applies.

STCG on listed bonds is taxed at the standard rate. LTCG on listed bonds varies: 20% with indexation or 10% without for capital-indexed bonds, and 10% without indexation for zero-coupon and rupee-denominated bonds.

Sovereign Gold Bonds (SGB) are tax-exempt if held until maturity (eight years). Premature selling incurs capital gains tax: STCG if sold before a year, LTCG after a year, taxed at 20% with indexation or 10% without.

Real Estate

Residential property profits are STCG if sold within 24 months; LTCG applies if held longer. The acquisition cost includes initial property expenses. STCG is added to your income and taxed as per slab rates, while LTCG incurs a 20% tax with indexation.

Expert Opinions

Experts advocate for a streamlined capital gains regime, suggesting uniformity in holding periods and tax rates across assets. Aligning changes with government initiatives could enhance compliance and investor friendliness.

ICRA recommends simplifying capital gains taxation, promoting higher compliance while acknowledging the risk disparity among investors.

Equity Investment

STCG tax on equity mutual funds without STT payment is at the standard rate, while LTCG tax is 20% with indexation.

As the budget approaches, investors hope for further streamlining of capital gains taxes. Short-term gains from listed securities incur a 15% tax, while long-term gains over Rs 1 lakh annually face a 10% tax.

In anticipation of the budget, investors await potential changes in capital gains tax policies.

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