Finance Minister Nirmala Sitharaman has raised taxes on capital gains from equity investments. As per the Budget 2024 announcements, the government plans to levy a 20% tax on financial assets held for less than 12 months, up from 15%. It also increased the tax on long-term capital gains to 12.5% from 10% on all financial and non-financial assets.
In a post-budget press conference on the 12.5% tax on long-term capital gains, Union Finance Minister Nirmala Sitharaman said, "...We wanted to simplify the approach to taxation - also for the capital gains. Second, if anything, the average taxation has come down when we say it is 12.5%. We have worked out for each of the different asset classes...The point that we brought it down from below the average to 12.5% encourages market investment..."
She added that earlier, it was 20% with indexation; now, it's 12.5% with indexation.
On capital gains tax in the new tax regime, Rajarshi Dasgupta, Executive Director, AQUILAW, says, "The Long Term Capital Gains (LTCG) tax will rise from 10% to 12.5%, and the Short Term Capital Gains (STCG) tax on certain assets will increase from 15% to 20%. Short-term gains on certain financial assets shall henceforth attract a tax rate of 20%, while that on all other financial assets and all non-financial assets shall continue to attract the applicable tax rate. The exemption limit of capital gains on certain financial assets has been increased to ₹1.25 lakh annually. In addition, Sitharaman also announced a hike in STT (securities transaction tax) on F&O (futures and options) securities by 0.02% and 0.1% to discourage retail investors from trading in the risky market segment.
The widening gap between STCG and LTCG rates clearly encourages longer-term holdings, which aligns with our view of creating sustainable wealth. This move is also a step towards standardising taxation across various asset classes, potentially simplifying the investment decision-making process for many," he added.
