The Union Budget 2024 has significantly reshaped the capital
gains tax landscape for equity shares and equity mutual funds in India. Whether
you're a short-term trader or a long-term investor, understanding the latest
STCG and LTCG tax rules, exemptions, and filing procedures is vital to optimize
returns and remain compliant with the Income Tax Act.
Let’s break down the key tax implications for capital gains
and how these changes impact your investments in the financial year 2024-25.
What is Capital Gains Tax?
Capital gains tax is levied on
profits earned from the sale of capital assets like shares or mutual funds. It
is classified into:
Short-Term Capital Gains (STCG):
When equity shares or mutual fund units are sold within 12 months.
Long-Term Capital Gains (LTCG):
When they are sold after 12 months.
Short-Term Capital Gains (STCG) –
Latest Rules
Previously, STCG on listed equity
shares was taxed at 15%. However, as per the Union Budget 2024, effective from July
23, 2024, the rate has been increased to 20%.
Key points:
Applies to sales within 12 months.
STT (Securities Transaction Tax)
must be paid on listed shares.
STCG can be set off against both
STCG and LTCG.
Unused STCG losses can be carried
forward for 8 years, provided the income tax return is filed before the due
date.
Long-Term Capital Gains (LTCG) – Updated Provisions
Before 2018, LTCG on listed shares and equity mutual funds
was fully exempt. Budget 2018 introduced a 10% LTCG tax (without indexation) on
gains above ₹1 lakh per year, effective from April 1, 2018, with a ‘grandfathering
clause’ for gains accrued till Jan 31, 2018.
Under Budget 2024:
The LTCG tax rate has increased to 12.5%
(from 10%) for sales after July 23, 2024.
The exemption limit increased to ₹1.25
lakh annually to benefit low- and middle-income groups.
Gains before July 23, 2024, are still
taxed at 10% (for total gains above ₹1.25 lakh).
LTCG cannot be set off against
STCG, only against other LTCG.
Losses can be carried forward for
8 years, subject to timely ITR filing.
The grandfathering clause allows investors to calculate tax
on LTCG based only on gains made after Jan 31, 2018, even if sold later. This
protects historical investments from retroactive taxation.
Business Income or Capital Gains?
Choose Wisely
Investors have the flexibility to
classify share market income as:
Capital gains (for long-term
investment perspective).
Business income (for active
traders or F&O traders).
As per CBDT Circular No. 6/2016,
once a taxpayer chooses a classification (business income or capital gains),
they must stick to it for consistency in subsequent years—unless a major change
occurs.
Budget 2024: Additional Key
Changes
Holding Period Simplified:
12 months for listed securities.
24 months for all other capital
assets.
Tax on Off-Market Transfers:
LTCG from off-market sales (where STT is not paid) is taxed at 20%.
Gifts from relatives are not
considered taxable transfers.
Indexation Benefit Limited:
Removed for most assets except
real estate bought before July 23, 2024.
Taxation on Equity Mutual Funds—Mutual funds are taxed
similarly based on holding period and asset class:
Equity-Oriented Mutual Funds
STCG (sale within 12 months): 20%
(from FY 2024-25)
LTCG (sale after 12 months):
Before July 23, 2024: 10% for
gains above ₹1L
After July 23, 2024: 12.5% for
gains above ₹1.25L
Debt-Oriented Mutual Funds
Gains are taxed at slab rates (for
investments after April 1, 2023).
Indexation benefits removed.
Virtual Digital Assets (VDA) or
Crypto
Flat 30% tax on all gains (short
or long-term), no deductions allowed.
Dividend Tax on Equity Mutual
Funds
Taxed as per the income tax slab of
the investor.
10% TDS is applicable if dividend
income exceeds ₹5,000 in a financial year.
Tax-Saving Strategies for Investors
Utilize LTCG Exemption (₹1.25
lakh): Redeem strategically to remain under the limit.
Tax Loss Harvesting: Sell
loss-making investments to offset taxable gains.
Choose Growth Over Dividend
Options: Reduces recurring tax liability.
Use Systematic Withdrawal Plans
(SWPs) to manage gains within lower brackets.
How to File Taxes on Equity Gains
Use the Income Tax e-Filing Portal:
File ITR-2 (for capital gains) or ITR-3 (if declaring business income).
Declare gains and dividends separately: LTCG/STCG under “Capital Gains”; dividends under “Income from Other
Sources.”
Maintain Investment Records: Keep broker statements, contract notes, and mutual fund statements ready
Conclusion
With the revised capital gains tax rules for FY 2024-25,
investors need to reassess their investment strategy and optimize tax
efficiency. Understanding the new STCG and LTCG tax rates, exemptions, and
classification choices will help reduce tax liability and ensure long-term
wealth creation.
Always file your returns on time, maintain proper records,
and consider consulting a qualified financial advisor or tax expert for
tailored advice.
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