The Union Budget 2024 has hiked the long-term capital gains tax (LTCG) on all financial and non-financial to 12.5% from the current 10%. On the other hand, short-term capital gains tax (STCG) on some assets also increased to 20%.
Besides, one should also understand that the exemption limit for long-term capital gains tax has been increased to Rs 1.25 lakh from Rs 1 lakh. This means you can potentially save money on capital gains taxes, even though the LTCG tax rate itself has increased slightly to 12.5% (up from 10%).
"Under the existing provisions, long-term capital gains (LTCG) were exempt up to Rs 1,00,000, and the tax on an income of Rs 2,00,000 amounted to Rs 10,400 (including a 4% cess, but excluding surcharge). With the new amendment, the exemption limit has been increased from Rs 1,00,000 to Rs 1,25,000. Consequently, the tax on a gain of Rs 2,00,000 now totals Rs 9,375 (including a 4% cess, excluding surcharge). This results in a net savings of Rs 650 for taxpayers," said Divya Baweja, Partner, Deloitte India.
The impact on your taxes will depend on the amount of your capital gains. It's possible you could see some savings despite the rate increase, thanks to the higher exemption limit.
Echoing similar views, CA (Dr.) Suresh Surana, said, "The rate of long-term capital gains derived from transfer of capital assets (such as listed equity shares subject to STT, units of equity-oriented fund and business Trust) has been proposed to be revised from 10% to 12.5% vide 2024 Budget announcements. Simultaneously, the applicable exemption threshold of Rs 1 lakh has been proposed to be enhanced to Rs 1.25 lakh for long-term capital gains under section 112A. With regards to the proposed amendments, where a taxpayer has a long term gain amounting to Rs 200,000, there would be reduction in tax amounting to Rs 625."
The change brings a welcome change for those who hold onto their investments for more than a year. The government has increased the exemption limit for LTCG tax. This means you get to keep more of your hard-earned profits before taxes come into play.
Krishan Mishra, CEO, FPSB India, "The recent hike in the long-term capital gains (LTCG) tax rate from 10% to 12.5% and the adjustment of short-term capital gains (STCG) taxation to 20% for certain financial assets is a concern. However one year above into long term is an important step towards encouraging long-term investments, despite the slight negative impact of the increased rates."