Tax query: With the new capital gains tax regime adopted in Union Budget 2024, how will listed equity shares or stocks be taxed?

In Union Budget 2024, there has been an increase in capital gains taxes for both short-term and long-term capital gains on different capital assets. Additionally, the holding periods for short-term and long-term capital gains have been adjusted in Union Budget 2024. With the new capital gains tax regime adopted in Union Budget 2024, how will listed equity shares or stocks be taxed?

S Dasgupta
Kalyani, West Bengal

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Reply by Dr Suresh Surana, Chartered Accountant

The 2024 Union Budget, as per the presentation by Finance Minister Nirmala Sitharaman, brought forth notable amendments to the taxation policies concerning capital assets and capital gains. A crucial factor to consider in assessing the tax ramifications for any asset is the duration it has been held. It is advisable to compute capital gains distinctly for various categories of assets. Moreover, the tax bracket rates vary for short-term and long-term investments in equities. Notably, capital gains derived from shares are classified under the equity and equity mutual fund asset categories.

The Finance Act 2024 introduced several changes to the taxation of listed equity shares, particularly concerning capital gains as discussed below:

The sale of listed shares would be categorised into long term and short term gains depending upon the period of holding. If the listed shares are held for more than 12 months before the sale, the gains derived would be long-term in nature otherwise, short-term. 

The short term capital gains would be taxed at the rate of 15% (enhanced to 20% w.e.f. 23rd July 2024) u/s 111A of the IT Act whereas the long term capital gains are taxed at 10% (enhanced to 12.5% w.e.f. 23rd July 2024) u/s 112A of the IT Act provided such gains exceed the threshold limit of Rs. 1.25 lakhs (previously Rs 1 lakh prior to Finance Act 2024) in a financial year.

Loss on equity shares

Short-term capital loss

Any short-term capital loss resulting from the sale of equity shares can be utilized to offset either short-term or long-term capital gains from any capital asset. If the loss cannot be fully offset, it can be carried forward for a duration of eight years and set off against any short-term or long-term capital gains realized during this period.

It is important to highlight that a taxpayer is eligible to carry forward losses only if their income tax return has been filed within the specified due date. Therefore, irrespective of the total income received in a given year falling below the minimum taxable threshold, submitting an income tax return is crucial to carry forward such losses.

Long-term capital loss

Long-term capital loss from equity shares until Budget 2018 was considered a dead loss – It could neither be adjusted nor carried forward. This is because long-term capital gains from listed equity shares were exempt. Similarly, their losses were neither allowed to be set off nor carried forward.

In Budget 2018, the law was amended to tax gains made from listed equity shares exceeding Rs 1 lakh at a rate of 10%. Alongside this amendment, the government announced that any losses arising from listed equity shares, mutual funds, and other assets would now be allowed to be carried forward.

Following this change, long-term capital loss from a transfer made on or after 1 April 2018 will now be permitted to be set off and carried forward in accordance with the existing provisions of the Act. This implies that the long-term capital loss can be set off against any other long-term capital gain. It is essential to note that long-term capital losses cannot be set off against short-term capital gains.

In addition, any unused long-term capital losses can be carried over to the following eight years to offset against long-term gains. To utilize and carry forward these losses, it is necessary for an individual to submit their tax return by the due date.



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