Home/Blogs/Why the Government announced hike in Long Term Capital Gains Tax

Why the Government announced hike in Long Term Capital Gains Tax

Budgetbudget highlightsbudget impactbudget newsunioun budget
24 Jul 20246 mins readBy MOFSL

Introduction:

The recent budget announcement for the FY 2024-25, made by Finance Minister Nirmala Sitharaman, has confirmed the stock market fears. The announcement includes a significant change-an increase in both long-term capital gains (LTCG) and short-term capital gains (STCG) taxes. 

Understanding the concepts of LTCG and STCG is crucial for making informed financial decisions. So, what exactly are these terms?

Long-term capital gains (LTCG) are the tax levied on the sale of these asset classes, such as stocks, mutual funds, real estate, etc., when the holding period is more than a year, whereas short-term capital gains (STCG) are levied when the sale of the same assets is made within one year.

However, this budget also introduced a new classification where listed financial assets held for more than a year are considered long-term. In contrast, unlisted and non-financial assets must be held for at least two years to qualify as long-term.

As per the Union Budget 2024-25, LTCG rates on all financial and non-financial assets have been increased from 10% to 12.5%, while STCG rates on all financial and non-financial assets have been raised from 15% to 20%. Certain financial assets, such as unlisted bonds, debentures, debt mutual funds, and market-linked debentures, will be taxed based on capital gains rates, regardless of the holding period.

However, there is a slight relief as the exemption limit for LTCG has been raised to Rs 1.25 lakh from the current Rs 1 lakh.

Additionally, the Finance Minister proposed increasing the Securities Transaction Tax (STT) rates. The STT on the sale of options in securities will rise from 0.0625% to 0.1% of the option premium, and the STT on the sale of futures in securities will increase from 0.0125% to 0.02%.

The rationale behind these measures is revenue generation, mainly targeting the recent surge in equity investments and profit-taking by investors. â€‹â€‹â€‹â€‹â€‹â€‹â€‹

While the changes in long-term capital gains taxation may not bring significant benefits, it's important to note the relief measures that have been put in place. The higher exemption limit and adjustments in tax rates for specific financial assets are designed to provide some relief to small and marginal taxpayers, offering a sense of reassurance in these uncertain times.

 

Related Blogs: FM to focus on Growth and Infrastructure - Union Budget 2024 | Tax Benefits or Tightened Policies - Union Budget 2024 | Tax hike on F&O Trading - Union Budget 2024 | How to Trade on July 23rd 2024 | MSME Budget Expectation | Salaried Class Budget Expectation | Budget 2024- Key changes in Income Tax

 

Financial Calculators: SIP Calculator | SWP Calculator | Compound Interest Calculator | EMI Calculator | FD Calculator | Retirement Calculator | Option Value Calculator | Inflation Calculator | Lumpsum Calculator

Disclaimer: The stocks, companies, or financial instruments mentioned in this blog are for informational purposes only and should not be considered as investment recommendations. It is advised to consult with your financial advisor before making any investment decisions. Investment in securities markets are subject to market risks, read all the related documents carefully before investing. Investors are strongly encouraged to carefully read the risk disclosure documents prior to participating in market-related investments or trading activities. Due to the volatile nature of financial markets, no guarantees can be made regarding investment returns. Motilal Oswal Financial Services Ltd. does not offer any assured returns on market-linked securities. Please note that past performance of stocks or indices is not indicative of future results.
Open Demat Account
I wish to talk in South Indian language
By proceeding you’re agree to our T&C