INDEX
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Budget 2024 Update
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What is Capital Gains Tax
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Defining Capital Assets
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Tax Rates for Capital Gains
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Changes in Debt Mutual Funds
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Asset Classification
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Notes on Inherited Assets
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Example of Income from Capital Gains for FY 2023-24
- Example of Income from Capital Gains for FY 2024-25
Income from Capital Gain
Income from Capital Gains – Budget 2024 Update
Budget 2024 has proposed several changes to capital gains tax, effective from FY 2024-25:
Classification of Assets: Assets will now be classified into two categories based on holding periods: 12 months and 24 months. The previous 36-month holding period has been removed.
Holding Period for Listed Securities: The holding period for listed securities is now 12 months. Securities held for more than 12 months will be considered long-term. For all other assets, the holding period will be 24 months.
Tax on Short-Term Capital Gains (STCG): The tax rate on short-term capital gains for listed equity shares, units of equity-oriented funds, and business trusts has increased from 15% to 20%. Other financial and non-financial assets held for a short period will continue to be taxed at slab rates.
Exemption Limit for Long-Term Capital Gains (LTCG): The exemption limit for long-term capital gains on the transfer of equity shares, equity-oriented units, or business trust units has been increased from ₹1 lakh to ₹1.25 lakh per year. However, the tax rate on these gains will rise from 10% to 12.5%, effective from July 23, 2024.
Tax on Other Assets: The tax on other long-term assets will be reduced from 20% to 12.5%, effective from July 23, 2024. The indexation benefit previously available on long-term assets has been removed. Taxpayers who sold real estate purchased before July 23, 2024, can choose between two options: paying 12.5% tax without indexation or 20% tax with indexation.
What is Capital Gains Tax in India?
Capital gains tax is levied on the profit earned from the sale of a capital asset such as property, stocks, bonds, or jewelry. It is applicable in the year the asset is sold or transferred.
Types of Capital Gains
1. Short-Term Capital Gains (STCG):
Profits from assets held for less than 36 months. For listed securities, mutual funds, and bonds, the holding period is less than 12 months.
2. Long-Term Capital Gains (LTCG):
Profits from assets held for more than 36 months. For properties like land or buildings, the period is 24 months.
Defining Capital Assets
A capital asset includes:
- Land, buildings, house property
- Vehicles, jewelry, machinery
- Stocks, bonds, mutual funds, patents, trademarks
Excluded Items:
- Business inventory (stock or raw materials)
- Personal-use items like clothes and furniture
- Rural agricultural land
- Certain government bonds and gold schemes
Rural Land Exemption
Agricultural land remains tax-free if:
- It is outside a municipality or cantonment board area with a population exceeding 10,000.
- It is beyond:
- 2 km from a municipality with 10,000–1,00,000 people
- 6 km from one with 1,00,000–10,00,000 people
- 8 km from one with over 10,00,000 people
Tax Rates for Capital Gains
Long-Term Capital Gains (LTCG) For Fy 2024-25
- Listed Equity Shares & Equity Mutual Funds: Gains over ₹1 lakh are taxed at 10% (12.5% after July 23, 2024).
- Other Assets: Taxed at 20% (12.5% after July 23, 2024).
Short-Term Capital Gains (STCG) For Fy 2024-25
- Listed Equity Shares: Taxed at 15% (20% after July 23, 2024).
- Other Assets: Taxed as per the individual’s income tax slab.
Changes in Debt Mutual Funds (2023)
Gains from debt mutual funds are now always taxed as short-term. Additionally, indexation benefits for these funds are no longer available.
Asset Classification (Effective FY 2024-25)
- 12 months: Listed securities such as shares and bonds.
- 24 months: Other assets like property and unlisted shares.
Special Notes on Inherited Assets
For inherited or gifted assets, the original owner’s holding period is considered. For bonus or rights shares, the holding period begins from the allotment date.
Example of Income from Capital Gains for FY 2023-24
Transaction 1: Sale of shares on 10 July 2023
- Sale Date: 10 July 2023
- Sale Value: ₹5,20,000
- Purchase Date: 1 June 2020
- Purchase Value: ₹1,50,000
Transaction 2: Sale of shares on 5 August 2023
- Sale Date: 5 August 2023
- Sale Value: ₹2,00,000
- Purchase Date: 5 April 2023
- Purchase Value: ₹70,000
Calculation of Capital Gains & Tax for FY 2023-24:
| Transaction | Sale Date | Sale Value (₹) | Purchase Date | Purchase Value (₹) | Capital Gain (₹) | Taxable Gain (₹) | Tax Rate | Tax Payable (₹) |
|---|---|---|---|---|---|---|---|---|
| 1. Long-Term Capital Gain (LTCG) | 10 July 2023 | 5,20,000 | 1 June 2020 | 1,50,000 | 3,70,000 | ₹3,70,000-₹1,00,000= ₹2,70,000 | 10% | 27,000 |
| 2. Short-Term Capital Gain (STCG) | 5 August 2023 | 2,00,000 | 5 April 2023 | 70,000 | 1,30,000 | 1,30,000 | 15% | 19,500 |
| Total Capital Gains Tax Payable | 46,500 |
This table summarizes both the capital gains and the corresponding taxes for each transaction. The total tax payable is ₹46,500.
Example of Income from Capital Gains for FY 2024-25
Transaction 1: Sale of shares on 10 July 2024
- Sale Date: 10 July 2024
- Sale Value: ₹5,20,000
- Purchase Date: 1 June 2020
- Purchase Value: ₹1,50,000
Transaction 2: Sale of shares on 5 August 2024
- Sale Date: 5 August 2024
- Sale Value: ₹2,00,000
- Purchase Date: 5 April 2024
- Purchase Value: ₹70,000
Calculation of Capital Gains & Tax for FY 2024-25:
| Transaction | Sale Date | Sale Value (₹) | Purchase Date | Purchase Value (₹) | Capital Gain (₹) | Taxable Gain (₹) | Tax Rate | Tax Payable (₹) |
|---|---|---|---|---|---|---|---|---|
| 1. Long-Term Capital Gain (LTCG) | 10 July 2024 | 5,20,000 | 1 June 2020 | 1,50,000 | 3,70,000 | ₹3,70,000 – ₹1,25,000 = ₹2,45,000 | 12.5% | 30,625 |
| 2. Short-Term Capital Gain (STCG) | 5 August 2024 | 2,00,000 | 5 April 2024 | 70,000 | 1,30,000 | 1,30,000 | 20% | 26,000 |
| Total Capital Gains Tax Payable | 56,625 |
Total Tax Payable for FY 2024-25:
- Total Tax from LTCG: ₹30,625
- Total Tax from STCG: ₹26,000
Total Tax Payable = ₹30,625 + ₹26,000 = ₹56,625
So, Mr. A will have to pay a total of ₹56,625 as tax for FY 2024-25 on the capital gains from these two transactions.