Union Budget: Finance Minister Nirmala Sitharaman tried touching all sectors and segments with a series of tax reforms and simplification of some existing reforms for residents and Non-Resident Indians (NRIs). Along with tweaks in capital gains tax for stocks, mutual funds, Budget 2024 proposed changes for non-resident Indians, including higher taxes on certain gains and reductions on specific assets. These adjustments will be effective for transfers conducted on or after July 23, 2024. The primary objective of these modifications is to align the taxation structure for residents and non-residents, fostering greater equity in the system.
Capital Gain Taxes changes proposed:
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The revised tax rules, effective immediately, have made significant changes to the Long-Term Capital Gains (LTCG) exemption limit. Specifically, the LTCG exemption limit has been raised from Rs 1 lakh to Rs 1.25 lakh.
Additionally, it is noteworthy that the tax rate on gains exceeding this revised exemption limit has been increased from 10% to 12.5%. These adjustments aim to better align the tax structure and regulations within the financial sector.
On the other hand, short-term capital gains tax (STCG) on some assets also increased to 20%.
NRIs will now be taxed on:
> In the Budget for the year 2024, it has been decided to increase the tax rate for long-term capital gains arising from transfers specified in section 115E to 12.5% for certain assets.
> Moreover, as of July 23, 2024, long-term capital gains mentioned in section 112A that exceed Rs 1,25,000 will now be subject to a tax rate of 12.5%, up from 10%.
> Similarly, the tax rate for short-term capital gains mentioned in section 111A has been raised to 20% from the previous rate of 15%.
“Parity in taxation between resident and non-resident assesses: To bring parity of taxation between residents and non-residents, corresponding amendments to section 115AD, 115AB, 115AC, 115ACA and 115E are being made to align the rates of taxation in respect of long-term capital gains proposed under section 112A and 112 and rates of short term capital gains proposed under section 111A,” the Budget statement read.
Simplified holding periods
Listed Securities: One year
All Other Assets: Two years
Revised income tax rates
Listed Equity Shares, Equity-Oriented Mutual Funds, Units of Business Trusts:
Short-Term Capital Gains (STCG): Increased from 15% to 20%
Long-Term Capital Gains (LTCG): Increased from 10% to 12.5%
The Budget statement said:
> Capital gains taxation is also proposed to be hugely simplified.
> 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.
> 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.
> Listed financial assets held for more than a year will be classified as long term, while unlisted financial assets and all non-financial assets will have to be held for at least two years to be classified as long-term.
> Unlisted bonds and debentures, debt mutual funds and market linked debentures, irrespective of holding period, however, will attract tax on capital gains at applicable rates.
As per the budget 2024, “There are various provisions of Tax Deduction at Source (TDS) with different thresholds and multiple rates between 0.1%, 1%, 2%, 5%, 10%, 20%, 30% and above. To improve the ease of doing business and better compliance by taxpayers, the TDS rates are proposed to be reduced. However, no change would occur with respect to sections such as TDS on salary, TDS on virtual digital assets, TDS on winnings from lottery, etc/ race horses, payment on transfer of immovable property and payments to non-residents, TDS rates for TDS on contracts, etc.”
“The new 2024 budget changed several tax laws. The tax increase on short-term capital gains for equity investments, which went from 15% to 20 % was apprehensible. However, nobody anticipated the tax on long-term capital gains on equity-oriented investments, which went from 10% to 12.5%, shocking retail investors. An increase was even expected in the securities transaction tax on F&O. In order to advocate for wealth creation across the country, and take India’s economy to the third position globally, investment in the equity market has to be encouraged. The culture of equity investment should be promoted, but investors will be deterred by LTCG taxes being increased. Additionally, the indexation benefit from real estate has been eliminated which will result in old properties such as an ancestral house attracting a higher tax. For example, if ancestral Property was purchased in 2001 at ₹5 Lakhs and sold at ₹ 30 Lakhs in 2024, per the new taxation law, new tax will Rs 3,12,500, higher compared to Earlier Old Taxation Tax, which will be Rs 2,37,000 due to indexation reducing the amount of profit that is taxed. However, the tax on newer properties which are sold after 1 year of possession will be significantly lower than before,” said Tapan Doshi, Chartered Accountant, SEBI Registered Research Analyst, Founder of Thoughtful Investors Hub.