In the Union Budget 2024, the capital gains tax regime for short-term capital gains (STCG) and long-term capital gains (LTCG) on different capital assets was changed. Additionally, the Budget adjusted the holding periods for these gains. These changes were implemented to streamline the tax system and promote better adherence to tax regulations.
Changes were made to tax rates for Long-Term Capital Gains (LTCG) and Short-Term Capital Gains (STCG). The STCG tax rate for equity investments has been increased to 20%, up from the previous rate of 15%. For other assets, the STCG will be taxed based on the taxpayer’s applicable Income Tax slab rate. LTCG will now be taxed at a flat rate of 12.5%. The new provisions for taxation of capital gains come into force from 23.7.2024 and shall apply to any transfer made on or after 23.7.2024.
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LTCG from equity and equity-oriented mutual funds will be exempt from tax up to Rs 1.25 lakh per financial year, an increase from the previous exemption limit of Rs 1 lakh.
There have also been changes to the holding period for capital gains taxation. Assets will now be classified as long-term if held for either 12 months or 24 months. The previous 36-month holding period has been removed. The holding period for all listed securities has been standardized at 12 months.
LTCG exemption
The exemption of Rs 1.25 lakh for LTCG (under Section 112A) and grandfathering provisions are available in both the old and new tax regimes.
To qualify for the benefits under Section 112A:
The sale must involve equity shares, units of an equity-oriented mutual fund, or units of a business trust.
The securities must be considered long-term capital assets, held for more than one year.
Both the purchase and sale of equity shares should be subject to STT (Securities Transaction Tax). For equity-oriented mutual fund units or business trusts, only the sale transaction is liable to STT.
If all conditions are met, individuals can claim an exemption of up to Rs 1.25 lakh under Section 112A.
Grandfathering provisions are in place for eligible capital assets, such as listed equity shares, units of equity-oriented mutual funds, and units of business trusts, that were acquired before January 31, 2018, and are sold after February 1, 2018. If your assets meet these criteria, you may also qualify for grandfathering provisions.
Changes in LTCG
Previously, there were three different holding periods used to determine whether an asset qualified as a long-term capital asset. This has since been simplified to just two holding periods. Listed securities now have a holding period of one year, while all other assets have a holding period of two years. This change means that the holding period for all listed assets, including units of business trusts (such as ReITs and InVITs), has been reduced from 36 months to 12 months. Additionally, the holding period for gold and unlisted securities (excluding unlisted shares) has also been reduced, from 36 months to 24 months.