The finance minister’s latest announcement may have unsettled some investors, but the overarching goal of the Union budget is clear: simplification. For years, taxpayers have called for less confusion and more straightforward tax compliance. In response, the Finance Bill 2024 introduces changes designed to streamline capital gains provisions significantly.
The finance minister’s latest announcement may have unsettled some investors, but the overarching goal of the Union budget is clear: simplification. For years, taxpayers have called for less confusion and more straightforward tax compliance. In response, the Finance Bill 2024 introduces changes designed to streamline capital gains provisions significantly.
Currently, the capital gains regime features complex tax rates and varying holding periods for different asset types. This Budget aims to address these complexities by standardizing the holding period: 12 months for listed securities and 24 months for all other assets.
Currently, the capital gains regime features complex tax rates and varying holding periods for different asset types. This Budget aims to address these complexities by standardizing the holding period: 12 months for listed securities and 24 months for all other assets.
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Further, the tax rates for long term capital assets are proposed to be 12.5% in respect of all categories of assets from the erstwhile 10% without indexation, and 20% with indexation. This covers not only financial assets like shares, bonds, mutual funds but also other assets like real estate, gold, etc. Also, the tax rates for short term listed shares have increased from the existing 15% to 20%.
Essentially, multiple asset classes, even within listed securities, with different timelines to qualify as long-term gains, with and without indexation provisions have been substituted for two asset classes with two rates. Sounds simple, isn't it?
The exemption for long-term capital gains on listed shares has been raised to ₹125,000 from ₹100,000, effective from 23 July 2024. All transactions from this date will fall under the simplified capital gains regime.
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Moreover, the Budget has proposed an increase in the Securities Transaction Tax (STT) for options contracts trading to 0.1% from 0.062% and for futures contracts trading to 0.02% from 0.0125%, effective 1 October 2024.
The increased short-term and long-term capital gains rates will impact stock market investors, but the effects on real estate investors are more pronounced.
Property, being an illiquid asset often held for extended periods for personal or business use, previously benefited from indexation to account for inflation. With indexation no longer available, this relief is lost, although the reduced tax rate will partially offset this disadvantage. Investors in gold, whether physical or digital, will also face similar changes.
On the positive side, the new regime is expected to simplify the process of determining tax liability and filing income tax returns.
Sunil Gidwani is partner- financial sector, Nangia Andersen LLP