Budget 2024 changes the holding period rules for long-term capital gains
The capital gains are classified as short-term or long-term based on the holding period of the capital asset. Earlier, there were different holding periods for various capital assets to qualify capital gains as STCG or LTCG. For instance, capital gains from listed equity shares were classified as long-term if they are held for more than 12 months, whereas gains from unlisted bonds were classified as long-term if they were held for more than 36 months.
Budget 2024 has announced there will be only two holding periods — 12 months and 24 months to determine whether capital gains arising from the assets are short-term or long-term. For all listed assets, the holding period is proposed to be 12 months to qualify the gains as long-term capital gains. This will apply to a) Listed stocks, b) Listed bonds, c) Equity ETFs, d) Gold ETFs, e) Bond ETFs, f) Real estate investment trusts (REITs), and g) Infrastructure investment trusts (InvITs).
Here the term ‘listed’ means assets listed on the recognised stock exchanges in India.
If you are wondering, how capital gains from your equity mutual funds will be taxed, keep in mind that Section 2 (42A) first proviso allows a long-term holding period of 12 months for equity mutual funds.
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For all other assets, the holding period will be 24 months to qualify the gains as long-term capital gains. This includes a) real estate, b) gold, c) unlisted shares (shares listed abroad will also be considered unlisted), d) gold mutual funds, e) debt mutual fund units bought on or before March 31, 2023, and f) foreign equity funds.
In the case of debt mutual funds, the holding period to qualify as a long-term asset is now reduced from 36 months to 24 months after Budget 2024. However, there is no longer any distinction between tax charged on long-term gains and short-term gains on debt mutual funds as they are taxed as per tax slab rates applicable to the investor.
The gains from the following investments will qualify as short-term capital gains and be taxed at the tax slab and rate applicable to the investor, says Abhishek Kumar, a SEBI RIA and Founder of SahajMoney.com.
a) Debt funds units (bought after March 31, 2023)
b) Market linked debenture
c) An unlisted bond or debenture that is sold or redeemed on or after July 23, 2024.
Budget 2024 has increased the limit of exemption of capital gains on listed equity and equity oriented mutual funds to Rs 1.25 lakh per annum from the existing Rs 1 lakh.
Budget 2024 unveils new capital gains tax regime: How will capital gains from your investments be taxed?
Short-term capital gains from all assets, except listed equity shares and equity mutual funds, will be taxed according to the tax slab and rate applicable to the investor. Budget 2024 has hiked short-term capital gains from equity shares and equity mutual funds to 20%. It will be applicable, irrespective of the tax slab. Budget 2024 has mentioned long-term capital gains will be taxed at a flat rate of 12.5% without indexation. CA Suresh Surana says, “The rate of long-term capital gains under provisions of various sections is proposed to be kept at 12.5% in respect of all categories of assets. This rate earlier was 10% for STT paid listed equity shares, units of equity-oriented fund, and business trust under Section 112A and for other assets, it was 20% with indexation under Section 112.”
He further adds, “With rationalisation of rate to 12.5%, indexation available under second proviso to Section 48 is proposed to be removed for calculation of any long-term capital gains which is presently available for a property, gold and other unlisted assets.”
Capital Gains Tax Rate, Holding Period Changes after Budget 2024: New STCG, LTCG tax rates
| Class of capital asset | Holding period for classification as LTCG | Short-term capital gains tax | Long-term capital gains tax | |||
| Existing rule | Proposed rule in Budget 2024 |
Existing tax rates | Proposed tax rates after Budget 2024 |
Existing tax rates | Proposed tax rates after Budget 2024 | |
| Listed equity shares or units of equity oriented mutual funds / Listed units of business trusts (REITs / InVITS)# | 12 months (36 months for units of business trust) | 12 months | 15% | 20% | 10% | 12.50% |
| [on gains exceeding Rs. 1,00,000] | [on gains exceeding Rs. 1,25,000] | |||||
| Unlisted shares# | 24 months | 24 months | Applicable rates | Applicable rates | 10% without indexation (for non-residents) | 12.5% without indexation |
| 20% with indexation (for residents) | ||||||
| Listed securities (other than units) or zero-coupon Bonds (including listed debentures / bonds*)# | 12 months | 12 months | Applicable rates | Applicable rates | Lower of 10% without indexation or 20% with indexation* | 12.5% without indexation |
| Unlisted debentures and bonds# | 36 months | 24 months | Applicable rates | Applicable rates | 20% with indexation | Applicable rates |
| Market linked debentures and debt mutual funds# | 36 months | 24 months | Applicable rates | Applicable rates | Applicable rates | Applicable rates |
| Land, building# | 24 months | 24 months | Applicable slab rates | Applicable slab rates | 20% with indexation | 12.5% without indexation |
| Physical gold$ | 36 months | 24 months | Applicable slab rates | Applicable slab rates | 20% with indexation | 12.5% without indexation |
| Gold ETF$ | 36 months | 12 months | Applicable slab rates | Applicable slab rates | Applicable slab rates | 12.5% without indexation |
| Gold fund$ | 36 months | 24 months | Applicable slab rates | Applicable slab rates | Applicable slab rates | 12.5% without indexation |
| Sovereign gold bond$ | 36 months | 12 months | Applicable slab rates | Applicable slab rates | 20% with indexation | 12.5% without indexation |
| Any other capital asset# | 36 months | 24 months | Applicable slab rates | Applicable slab rates | 20% with indexation | 12.5% without indexation |
*Gains on unlisted bond or debenture that is sold or redeemed on or after July 23, 2024 are considered as short-term capitals gains and will be taxed at your slab rate
#Source: CA Suresh Surana
$Source: Abhishek Kumar, SEBI RIA, Founder of SahajMoney.com
When will the new capital gains tax rate, and holding period come into effect?
All the changes in the new capital gains tax rate and holding period, except for gold and international funds, will be effective immediately from July 23, 2024, announced Budget 2024.
These long-term capital gains on gold and international funds will be taxed at 12.5%. However, this new rule comes into effect from April 1, 2025.
Budget 2024: You have to pay more on property sales now
Till July 23, 2024, the properties held for over two years, the resulting long-term capital gains were taxed at 20% after indexation. “The rate for other long-term capital gains on all assets (like sale of house property) has been reduced from 20% to 12.5% and the benefit of indexation removed,” says Mihir Tanna, Associate Director, Direct Tax, SK Patodia and Associates.
He adds, “The intention was to ease/simplify the taxation of capital gains and their easy computation. However, the reduction in the rate may benefit some sellers of house property depending on the extent of appreciation of the house during the holding period.”
The indexation cut-off year is 2001. So, for an apartment purchased before 2001, property valuation as of April 2001 can still be used as acquisition cost, which will be reduced from the sale price to determine capital gains. And those gains now will be taxed at a lower rate, 12.5% instead of 20% with indexation.
