An increase in short and long-term taxes on capital gains is set to dig deeper into the pockets of investors. Long Term Capital Gains (LTCG) tax will be hiked from 10 to 12.5% while Short Term Capital Gains (STCG) tax on some assets will be increased from 15% to 20%, Finance Minister Nirmala Sitharaman announced while presenting the Union Budget 2024 this morning.
Indian equities reacted sharply to the capital gains tax hike with Sensex dropping over 500 points.
Check Union Budget 2024 big announcements here
The Union Budget 2024 was unveiled in the Parliament today amid expectations of tax relief to the middle class and traders.
Ms Sitharaman, who vowed to simplify the capital gains taxation, proposed to raise the exemption limit on some financial assets to Rs 1.25 lakh per year. The exemption limit was earlier Rs 1 lakh on long-term equity gains.
Listed financial assets held for more than a year and unlisted financial and non-financial assets held for two years are classified as long-term, said Ms Sitharaman. Unlisted bonds, debentures, debt mutual funds, and market-linked debentures will be taxed according to individual tax slabs, she added.
“Short-term gains on certain financial assets shall henceforth attract a tax rate of 20 per cent, while that on all other financial assets and all non-financial assets shall continue to attract the applicable tax rate,” said the Finance Minister.
She later told reporters the average taxation has come down with LTCG tax being set at 12.5%. A Finance Ministry official later explained that the capital gains tax has been rationalized. “Earlier, it was 10% for listed equities and 20% for unlisted equities. Both will now be taxed at 12.5%,” said the official.
The securities transaction tax (STT) on futures and options will be raised to 0.02% and 0.1% respectively - a move that comes amid concerns over rising volumes in futures and options. The corporate tax rate on foreign companies will be reduced to 35% from 40%, she announced.
The government also abolished the angel tax, which will help boost the startup ecosystem in the country.
It also proposed to merge the two tax exemption regimes for charities and reduce the TDS (tax deducted at source) rate on e-commerce from 1% to 0.1%.
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