With regard to capital gains tax, the tax rate could further range from 10 percent to a nominal tax rate, and the holding period may vary from 12 months to 36 months.
The capital gains tax rates and periods associated with various assets such as debt, equity, real estate, and so forth determine whether your gains are short-term or long-term. An investor group hopes that the budget will further standardize capital gains taxes as it prepares to be presented in Parliament on February 1.
Budget 2024-Investment in Equity:
Short-term capital gains (STCG) tax is levied at a rate of fifteen percent on the sale of listed securities, which include equity shares and units of equity-oriented mutual funds (where equity exposure exceeds sixty-five percent of the assets), before the year ends. If the Securities Transaction Tax (STT) is paid at the time that such securities are transferred, then this concessional tax rate is applicable.
When units of equity-oriented funds or listed equity shares are sold after a year, the long-term capital gains (LTCG) tax becomes applicable. Any gains over Rs 1 lakh in a year are subject to a 10% tax.
In instances where listed equity shares are subject to non-payment of STT, the tax rate on STCG remains unchanged, while the tax rate on LTCG is either 10 percent without indexation benefits or 20 percent with indexation.
When stock mutual funds fail to pay STT, the tax on STCG is applied at the regular rate, and the tax on LTCG is 20 percent with indexation.
The STCG period is 12 months for listed shares and 24 months for unlisted shares. Moreover, LTCG (after 24 months) is taxed at 20% with indexation benefits, whereas STCG on unlisted shares is taxed at your income-tax bracket rates.
Investment in debt
The government decided to tax capital gains from debt mutual funds and some other types of non-equity mutual funds at a higher rate in the Finance Act 2023, which is a huge setback for investors in mutual funds.
The Finance Bill was amended on March 24, 2023, stating that gains from funds that have less than 35 percent of their assets in equities are not eligible for indexation and LTCG benefits. These units will be included in your income and subject to income-taxation at the time of the sale.
Previously, gains from debt fund investments were subject to the 20 percent after-indexation LTCG tax rate if the units were held for more than three years.
However, you must wait 12 months after selling listed debt securities on stock exchanges in order to be subject to capital gains tax. You must pay STCG tax if you sell this security before the full year; otherwise, you must pay LTCG tax.
Zero-coupon bonds and listed bonds denominated in rupees, also known as Masala bonds, are subject to an LTCG tax of 10% without indexation.
The regulations are a little bit different for SGB. If you hold SGBs until they mature, which is in eight years, they are free from taxes. If you sell them before their time, you have to pay capital gains tax. Thus, STCG tax is due if you sell SGB before a year has passed. However, you must pay LTCG tax if you sell after a year.
The conventional tax rate on SGBs is the STCG tax; the LTCG tax is either 10% without indexation or 20% with indexation.
The minimum duration of LTCG provisions increases to 36 months for debt securities that are not listed.
Therefore, the standard tax rate (STCG) is applied to bonds denominated in rupees, zero-coupon bonds, and listed capital-indexed bonds. For listed capital-indexed bonds, the LTCG tax would be either 10% in the absence of indexation or 20% with indexation.
Investment In Real Estate
When it comes to residential real estate, the profits from the sale will be treated as STCG if the total holding period at the time of sale is less than 24 months. On the other hand, gains are categorized as LTCG if the holding period is longer than 24 months.
The cost of the property’s acquisition must be taken into account when calculating capital gains on the sale of immovable property.
The amount that the buyer paid when they first purchased the asset is referred to as the cost of acquisition of an asset under income tax regulations. This covers capital costs incurred in connection with the acquisition or completion of the title to the property.
