Budget recap: 5 income tax rules introduced in 2024

Before Budget 2024 was announced, taxpayers were expecting many changes including a higher exemption limit under section 80C and a more relaxed capital gains tax regime.

The impact of these rules on taxpayers varies from person to person. As we wait for the upcoming Budget speech on February 1, 2025, let's recap the top five tax rules that were introduced in Budget 2024.

1. Holding period

There are now only two holding periods for classifying gains from a capital asset as short-term or long-term: 12 months and 24 months.

The holding period is 12 months for listed assets like shares, mutual funds, real estate investment trusts (REITs) and infrastructure investment trusts (InVITs). For example, if you buy units of a mutual fund today and hold it for 12 months or more, your gains will classified as long-term capital gains (LTCG) and taxed accordingly. However, if you sell the units before 12 months, your gains will be treated as short-term capital gains (STCG).

For unlisted assets like bonds, debentures, gold, property, and unlisted shares, the holding period is 24 months.

Before Budget 2024, there were three holding periods for different asset classes - 12 months, 24 months, and 36 months.

2. STCG tax hike

The rate of short-term capital gains tax on listed equity shares, equity mutual funds, and units of REITs and InVITs was increased to 20%. Earlier, they were taxed for STCG at 15%.

3. LTCG tax hike

Budget 2024 introduced a uniform LTCG tax rate of 12.5% for all financial and non-financial assets. Earlier, there were different LTCG tax rates for various assets. For example, LTCG tax on stocks and equity mutual funds was 10% while long-term gains from property were taxed at 20%.

4. Indexation benefit

The finance minister first proposed to remove the indexation benefit on the sale of property (land, house). However, a few weeks after the budget, the government allowed two options:

A. For properties purchased after July 23, 2024: No indexation benefit will be allowed

B. For properties purchased before July 23, 2024: Taxpayers can avail of either of the following two options, depending on what works best for them.

i. 20% with indexation ii. 12.5% without indexation

The indexation benefit allows property sellers to adjust the purchase price or the original cost of acquisition to reflect the effect of inflation on it. It may help in lowering the overall tax outgo from long-term gains realised after selling land or a house.

5. LTCG exemption limit hike

Budget 2024 also increased the exemption limit for long-term capital gains from listed financial assets to ₹1.25 lakh. Earlier, only ₹1 lakh was exempted from taxation as LTCG.