Budget'24: LTCG gains tax hiked, but here's you can save more on your investments now

New Delhi: Budget 2024-2025 brings in an increase in the capital gains tax on both long and short-term gains from selling stocks. Now selling any share or equity mutual fund unit will carry higher taxes than before. However, some relief has definitely been provided by increasing the exemption in the case of long-term capital gains.

What does Budget 2024-2025 say?

There is a piece of bad news for investors of the stock market and mutual funds. On July 23, Finance Minister Nirmala Sitharaman presented the budget for the new FY2024-2025. It has brought several changes in the ecosystem of economy for the nation. Investors active in trading, the stock market, and mutual funds have received a shocker. This comes with the announcement of an increase in the capital gains tax. Implemented on both long-term and short-term gains from selling shares.

The government announced the following changes in Budget’24:

• Increased the short-term capital gains tax (STCG) rate from 15% to 20% for selling listed shares or equity mutual fund units held for less than 12 months.
• Raised the long-term capital gains tax (LTCG) rate from 10% to 12.5% on gains from assets held for more than 12 months.

So, if you purchased shares worth Rs. 2 lakhs on January 2, 2024, and sold them for Rs. 3 lakhs on July 25, 2024. From this the gains would be considered short-term since the holding period is less than 12 months. You will have to pay tax at a rate of 20% on short-term gains of 1 lakh rupees, which means a tax of 20,000 rupees.

Under the previous system, you had to pay tax at a rate of 15 %. Which amounted to 15,000 rupees on gains. You will have to pay 5,000 rupees more in tax. Under the new rules, you would pay 20% tax on the profit, compared to 15% previously.

Previously, you could claim an exemption on long-term capital gains (LTCG) up to 1 lakh rupees annually. This exemption limit has been increased to 1.25 lakh rupees. This means you won’t have to pay any tax on LTCG up to 1.25 lakh rupees in a financial year. However, LTCG above this amount will now be taxed at a rate of 12.5 percent instead of the previous 10 percent.

Let’s understand this with an example

Suppose you bought shares worth 2 lakh rupees on January 2, 2024, and sold them for 5 lakh rupees on February 10, 2025. Since the holding period exceeds 12 months, it qualifies as long-term capital gain. Your profit is 3 lakh rupees. You will get an exemption of 1.25 lakh rupees on this profit, so your taxable long-term capital gain will be 1.75 lakh rupees. At a tax rate of 12.5 percent, the LTCG tax will amount to 21,875 rupees.

Therefore, after the budget changes, you would owe 21,875 rupees in LTCG tax on the 3 lakh rupees profit from selling shares.

Under the previous system, you would have calculated the tax liability as follows: the long-term capital gain would have been 2 lakh rupees, and you would have paid a 10 percent tax, resulting in a tax liability of 20,000 rupees.

Finance Minister Nirmala Sitharaman has described the changes in capital gains tax as part of simplifying the tax system. However, the increase in capital gains tax for shares and equity mutual funds will primarily affect regular traders. Now, they will have to pay an additional 5 percent tax each time they sell shares, which will have the most significant impact.