Budget 2024: What changes in capital gains tax mean for investors
MUMBAI: In the Union Budget 2024-2025, the government has introduced significant changes to the capital gains tax framework. New tax rates on capital gains for various asset classes are poised to impact many investors.
“Short-term gains on specified financial assets shall henceforth attract a tax rate of 20% instead of 15%, while that on all other financial and non-financial assets shall continue to attract the applicable tax rate. On the other hand, long-term gains on all financial and non-financial assets will attract a tax rate of 12.5%," said Union finance minister Nirmala Sitharaman in her budget speech.
Notably, indexation benefits have been withdrawn for all asset classes.
Here is a look at how different asset classes will be taxed and what this means for investors.
For stocks and equity mutual funds, the short-term capital gains (STCG) tax rate has been increased to 20% from 15%, while the long-term capital gains (LTCG) tax rate has been increased to 12.5% from 10%. At the same time, the exemption limit has been increased from ₹1 lakh to ₹1.25 lakh.
“The move will nudge more long-term investing in equities as the taxation on STCG has been increased," said Niranjan Avasthi, head of product and marketing at Edelweiss Asset Management.
The mutual fund industry welcomed the clarity in the budget for funds of funds (FoFs) and gold/silver exchange-traded funds (ETFs).
Changes in the last budget led to FoFs and gold/silver ETFs also getting treated as debt funds for taxation purposes.
“The requirement of an investment of not more than 35% in equity shares has also impacted other funds that are not debt-oriented funds, but invest below 35% in equity shares," read the budget document.
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