Finance Minister Nirmala Sitharaman proposed big changes on capital gains taxation in her 7th consecutive Budget Speech. She presented the Union Budget for Financial Year 2024-25 in Parliament on Tuesday (23 July, 2024).

The FM has proposed to apply a flat long-term capital gains tax on all financial and non-financial assets at 12.5%. Changes to STCG taxation have also been proposed. Read on for details: 

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Changes in Capital Gain Taxation

One of the major highlights of Budget 2024 is the revision of capital gains taxation. The Finance Minister announced that long-term capital gains (LTCG) on all financial and non-financial assets will now attract a tax rate of 12.5%, up from the previous rate of 10%.

In a parallel move, the short-term capital gains (STCG) tax has been increased to 20%, rising from the earlier rate of 15%. Furthermore, the exemption limit for capital gains has been raised to Rs 1.25 lakh per year.

This adjustment in tax rates aims to simplify the capital gains tax structure and bring more equity to the tax system. 

Listed financial instruments held for more than one year will now be classified as long-term, as part of the government’s efforts to simplify tax policies.

“Short term gains on certain financial assets shall henceforth attract a tax rate of 20 per cent, while that on all other financial assets and all  non-financial assets shall continue to attract the applicable tax rate,” the Finance Minister said. 

“Long term gains on all financial and non-financial assets, on the other hand, will attract a tax rate of 12.5 per cent. For the benefit of the lower and middle-income classes, I propose to increase the limit of exemption of capital gains on certain financial assets to Rs 1.25 lakh per year,” she added. 

In addition to these changes, the Securities Transaction Tax (STT) on futures and options (F&O) of securities has also been increased. The new rates are set at 0.02% for equity derivatives and 0.1% for other securities, effectively doubling the tax for equity and index traders.

This move is expected to generate additional revenue but could be a significant blow to F&O traders who will now face higher trading costs.

Also Read: Beware of Fake Income Tax Refund Scam: Man loses Rs 1.5 lakh! Know How to Protect Yourself

Moreover, income received from share buybacks will now be taxed in the hands of the recipients, further expanding the tax net. This change aims to ensure fair taxation and reduce tax avoidance through corporate buybacks.

No Indexation Benefit

The Government has also proposed to reduce indexation benefits on property, gold and other assets. 

“…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,” the Budget Memorandum said.

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