LTCG vs STCG: Budget 2024 hikes capital gains tax with immediate effect; here’s all you need to know

Budget 2024: Finance Minister Nirmala Sitharaman announced an increase in long-term (LTCG) and short-term capital gains (STCG) tax in her Union Budget speech on Tuesday. As per definition, any profit or gain that arises from the sale of a 'capital asset' is a capital gain.

Among other announcements that impacted the markets, the FM also announced a significant hike in the STT rate, rising from 0.01 percent to 0.02 percent. This increase will effectively double the tax burden for equity and index traders involved in Futures and Options (F&O) transactions.

Nirmala Sitharaman announced that STCG on “specified” financial assets would henceforth attract a tax rate of 20 percent instead of 15 percent. All other financial and non-financial assets shall continue to attract the “applicable tax rate.”

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On the other hand, the tax rate on long-term capital gains for all financial and non-financial assets will rise from 10 percent to 12.5 percent. Additionally, the exemption limit for these gains has been set at ₹1.25 lakh per year.

“A big relief on reassessment and reopening of returns filed for earlier years, which has been reduced to 6 years as opposed to 10 years earlier, including in search cases. LTCG on shares has been increased from 10% to 12.5%. The period for non-financial assets to qualify as LTCG is brought down to 2 years. Lowering of LTCG rate on sale of land/gold/unlisted shares to 12.5% in place of 20% is beneficial even though indexation is removed - overall will benefit most taxpayers,” said Sweta Kochar, Founder & Partner, PKC Management Consulting, about the Budget pertaining to personal tax.

Taxation of Capital Gains: Key points

The holding period has been simplified. There are only two holding periods: one year for listed securities and two years for all other assets.

The rate for short-term STT-paid listed equity, Equity-oriented mutual funds, and units of business trust has increased from 15% to 20%. Similarly, the rate for these assets for the long term has increased from 10% to 12.5%. However, the exemption limit of ₹1 lakh for LTCG on these assets has also increased to Rs. 1.25 lakh.

The rate for other long-term capital gains on all assets has been rationalised to 12.5% without indexation. This rate was earlier 20% with indexation. This will simplify the taxation of capital gains and their easy computation.

Rollover benefits already available under the IT Act have not changed. Therefore, taxpayers who want to save on LTCG tax even with low rates can continue to avail of rollover benefits upon fulfilment of applicable conditions.

These changes have come into effect immediately, i.e., from 23.7.2024.

The reduction in the rate will benefit all categories of assets. However, the benefit will depend on the extent of the asset's appreciation during the holding period.