Budget 2024: Capital gains tax rationalised, changes holding period

The government on Tuesday proposed to rationalise the capital gains tax rate and holding period of various assets, including securities and immovable properties, in the 2024-25 Budget.

Listed financial assets will have to be held for more than 1 year, while unlisted financial assets and all non-financial assets for at least 2 years to qualify for long-term capital gains tax.

As per the changes proposed in the Budget, short-term capital gains tax (STCG) on listed equity, equity-oriented mutual funds and units of a business trust has been increased to 20% from 15%.

Long Term Capital Gains Tax (LTCG) on these securities is proposed to be hiked to 12.5% from 10%. Long-term capital gains up to ₹1.25 lakh annually will be exempt from tax, up from ₹1 lakh currently.

In the case of listed bonds and debentures, LTCG is proposed to be reduced to 12.5% from the existing 20%. STCG rate remains unchanged.

In the case of unlisted bonds and debentures, LTCG will be levied at applicable slab rates against a flat 20% rate currently.

In the case of other assets (property, gold, etc), LTCG is proposed to be levied at 12.5% without indexation benefits against the existing rate of 20% with indexation.

Nangia Andersen LLP M&A Tax Partner Sandeep Jhunjhunwala said although impressive strides have been made to overhaul the capital gains tax regime by unifying provisions around the period of holding and tax rates for long-term capital gains, this proposal may not soothe taxpayers goosebumps as the proposal, in the garb of simplification, largely skews towards heightening tax rates in certain instances.

AKM Global Tax Partner Amit Maheshwari said the introduction of a uniform 12.5% tax on long-term capital gains, regardless of asset type, promotes fairness and simplifies tax calculation.

"The 20% tax on short-term gains is a dampener though but may incentivise long-term investments. This could potentially retain capital flows into the stock market and encourage a more stable investment environment. The increased exemption limit for long-term capital gains provides relief to individual investors and encourages savings," Maheshwari said.

Deloitte India Partner Divya Baweja said the increase in capital gain tax rates for listed securities may dampen the spirit of the investors.