Capital Gains Tax: What Changed on July 23, 2024, and What It Means for You.

Have you recently sold shares, mutual funds, or property? If so, understanding Capital Gains Tax is very important, especially with some significant changes that started on July 23, 2024. These changes, introduced in the Union Budget 2024, have updated how we calculate and pay tax on profits from selling our assets.

Let's break down Capital Gains Tax in simple terms and see what's new.

What is Capital Gains Tax?

Imagine you buy something like a piece of land, shares in a company, or units of a mutual fund. If you sell that asset for more than you paid, the profit you make is called a "Capital Gain." The tax you pay on this profit is called "Capital Gains Tax."

This tax is divided into two main types, based on how long you held the asset:

• Short-Term Capital Gain (STCG): This is the profit from selling an asset you held for a shorter time. The exact period varies by asset (we'll look at this below).
• Long-Term Capital Gain (LTCG): This is the profit from selling an asset you held for a longer time. Again, the time frame depends on the asset. Generally, LTCG is taxed at lower rates or has some advantages, encouraging long-term investing.

What's New from July 23, 2024? Big Changes!

The Union Budget 2024 brought some key updates to Capital Gains Tax rules, effective from July 23, 2024. These changes aim to simplify some aspects but also increase tax for certain short-term gains.

Here are the main changes you need to know:

1. Simpler Holding Periods:

Previously, the time you had to hold an asset to qualify as "long-term" was confusing, ranging from 12, 24, to 36 months. Now, it is clearer:

• For listed shares and listed units of equity-oriented mutual funds: If you hold them for more than 12 months, they are long-term. If held for 12 months or less, they are short-term.
• For most other assets (like property, gold, unlisted shares, debt mutual funds): If you hold them for more than 24 months, they are long-term. If held for 24 months or less, they are short-term.

2. New Tax Rates for Long-Term Capital Gains (LTCG):

For Listed Shares & Equity-Oriented Mutual Funds (where STT is paid):

• Old Rule (before July 23, 2024): 10% on gains exceeding ₹1 lakh.
• New Rule (from July 23, 2024): The tax rate has increased to 12.5% on gains exceeding ₹1.25 lakh. The tax-free limit has slightly increased from ₹1 lakh to ₹1.25 lakh, but the rate for gains above this has gone up. There is no indexation benefit here.

For Property, Debt Mutual Funds, Gold, and Other Assets:

• Old Rule (before July 23, 2024): Generally 20% with "indexation benefit." Indexation helps lower your taxable gain by adjusting the purchase price for inflation.
• New Rule (from July 23, 2024): A new, uniform rate of 12.5% without indexation has been introduced. This means you can’t adjust your purchase price for inflation anymore if you choose this new rate.

Important Option for Property (bought before July 23, 2024):

If you bought your property BEFORE July 23, 2024, but sell it AFTER this date, you have a choice! You can either pay 12.5% tax without indexation or stick to the old rule of 20% tax with indexation. Calculate both and choose the one that results in lower tax for you.

3. New Tax Rates for Short-Term Capital Gains (STCG):

For Listed Shares & Equity-Oriented Mutual Funds (where STT is paid):

• Old Rule (before July 23, 2024): 15%
• New Rule (from July 23, 2024): The tax rate has increased to 20%. This is a significant increase for short-term traders!

For Property, Unlisted Shares, and Other Assets (including Debt Mutual Funds acquired after April 1, 2023):

The gains are added to your regular income and taxed based on your income tax slab rates. So, if you are in the 30% tax bracket, you pay 30% tax on your STCG from these assets. There is no change here compared to previous rules for these assets.

Let's Look at Specific Assets:

Shares (Listed):

• STCG (held 12 months or less): 20% (if sold on or after July 23, 2024).
• LTCG (held more than 12 months): 12.5% on gains exceeding ₹1.25 lakh (if sold on or after July 23, 2024).

Equity Mutual Funds: (Treated like listed shares if equity-oriented and STT paid)

• STCG (held 12 months or less): 20% (if sold on or after July 23, 2024).
• LTCG (held more than 12 months): 12.5% on gains exceeding ₹1.25 lakh (if sold on or after July 23, 2024).

Debt Mutual Funds:

• If acquired on or after April 1, 2023: Always treated as STCG regardless of holding period, and taxed at your income tax slab rates. There is no indexation benefit.
• If acquired before April 1, 2023:
  • STCG (held 24 months or less): Taxed at your income tax slab rates.
  • LTCG (held more than 24 months): From July 23, 2024, taxed at 12.5% without indexation. (Previously 20% with indexation for holdings over 36 months).

Property (Land and Building):

• STCG (held 24 months or less): Taxed at your income tax slab rates.
• LTCG (held more than 24 months):
  • If acquired before July 23, 2024 and sold after: You can choose between 12.5% without indexation OR 20% with indexation.
  • If acquired on or after July 23, 2024: Taxed at 12.5% without indexation.

Gold (Physical, Gold ETFs, Sovereign Gold Bonds):

Physical Gold / Gold ETFs:

• STCG (held 24 months or less): Taxed at your income tax slab rates.
• LTCG (held more than 24 months): From July 23, 2024, taxed at 12.5% without indexation. (Previously 20% with indexation for holdings over 36 months).

Sovereign Gold Bonds (SGBs):

If held until maturity, the capital gain is fully exempt from tax! If sold before maturity, it is taxed like other gold.

Key Takeaways for You:

• Date Matters: The date you sell your asset is crucial. Rules changed from July 23, 2024.
• Higher STCG for Equity: Short-term gains from listed shares and equity mutual funds are now taxed more. This might make very short-term trading less appealing from a tax perspective.
• LTCG Rates Adjusted: While the rate for many LTCG (other than equity) has dropped to 12.5%, the removal of mandatory indexation means your taxable gain could be higher in some cases.
• Property Flexibility: If you owned property before July 23, 2024, you have a choice, which is beneficial! Always calculate both options.
• Debt Mutual Funds: If you bought debt funds after April 1, 2023, keep in mind they are always treated as short-term and taxed at your normal income tax rates.

It's wise to consult a tax advisor for personalized advice, as tax laws can be complicated and your specific situation might need tailored planning. For expert guidance on navigating these new capital gains tax rules and optimizing your tax strategy, Myitronline is here to help you manage your investments better!

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