Amendment in Income Tax Rules and impact on Investment
Category: Income tax act
「 ✦ Content ✦ 」
The recently announced Union Budget has introduced several amendments in capital gain tax rule which will impact investment in financial and non-financial assets.
Capital Gain Tax rules for Investment in Equity Shares
1.
Investment
in Listed Equity Shares
a. If listed Equity shares are held for less than 12 months before being sold for profit, the gains are Short-Term Capital Gains (STCG). Similarly, Capital Gains from Equity Shares held for over 12 months is Long Term Capital Gains (LTCG).
b. Earlier the tax rate applicable on STCG was 15% but recent amendment has increased the tax rate on STCG to 20%
c. As per recent amendment the limit on exemption on LTCG on transfer of listed equity shareshas increased from Rs.1 Lakh to Rs.1.25 lakh per year. However, the rate at which it is taxed has increased from 10% to 12.5%, without indexation.
d. The exemption limit to Rs. 1.25 lakhs has been increased for the whole of the year, whereas the tax rate has changed on 23rd July 2024.
2. Investment in unlisted Equity Shares
a. If unlisted Equity shares are held for less than 24 months before being sold for profit, the gains are Short-Term Capital Gains (STCG). Similarly, Capital Gains from Equity Shares held for over 24 months is Long Term Capital Gains (LTCG).
b. The tax on short term capital gain on unlisted equity shares shall continue to attract the tax at income tax slab rates.
c. The tax on LTCG has been reduced to from 20% to 12.5%. While on the other hand, the indexation benefit that was previously available on sale of long-term assets, has now been withdrawn. So, any sale of long term asset made after 23rd July, 2024, will attract tax rate of 12.5% only without indexation benefit.
3. Investment in Foreign Equity Shares
Resident Indian can invest up to USD 250000 in an year in equity share listed at foreign exchange. However, for income tax purpose, foreign equity shares are treated as domestic unlisted equity shares and STCG will be taxed at slab rate, whereas LTCG will be taxed at 12.5%
Capital Gain Tax rules for Investment in Mutual Funds
a. If equity-oriented funds are held for less than 12 months before being sold for profit, the gains are Short-Term Capital Gains (STCG). Similarly, Capital Gains from Equity Shares held for over 12 months is Long Term Capital Gains (LTCG).
b. In case sale of units of equity-oriented funds, the tax rate applicable on STCG was 15% but recent amendment has increased the tax rate on STCG to 20%.
c. In case LTCG on sale of units of equity-oriented fund, the tax exemption limit on LTCG has been increased from 1 lakh to 1.25 lakhs. However, the rate at which it is taxed has increased from 10% to 12.5% without indexation.
d. Investment in other than equity-oriented funds –
i) Any gain will be treated as LTCG if fund are held for more than 24 months from date of acquisition.
ii) In case of STCG on other than equity-oriented funds profit will be taxed as per income tax slabs
iii) In case of LTCG profit will be taxed at 12.5% without indexation benefit.
Capital Gain Tax rules for Investment in other financial and non financial assets-
Investment in Debt fund- As per SEBI regulations, 65% of the assets are compulsorily required to be investment in Debt investment such as bonds, certificate of deposits, listed debentures, T Bills etc.
As per new amended rules STCG will be calculated if asset is held for less than 24 months.
Therefore, in case of STCG, income tax slab rate will be applicable and in case of LTCG tax rate of 12.5% will be applied without indexation.
Investment in Hybrid fund – If hybrid fund invests 65% of its assets in equity linked listed securities that hybrid fund will be treated as equity-oriented fund as all taxation rules will be applied as applicable to equity oriented mutual fund, otherwise it will be treated as other finds and taxation rules will be applicable according to that.
Investment in Gold ETF – Any profit on sale of Gold ETF will be treated as STCG if such ETF is held for less than 24 months and will be taxed as per income tax slab. If ETF is held for more that 24 months then any gain on sale of such ETF will be treated as LTCG and taxpayer would have to pay tax at 12.5% without indexation.
Investment in Real Estate – As per amendment in Budget 2024, sale of any immovable property with 24 months from the date of acquisition will be treated as STCG and will be taxed as per income tax slab rates.
Where as sale after 24 month from date of acquisition will be treated as LTCG and will be taxed lower of 20% with indexation and 12.5% without indexation.
Investment in Fixed Income Securities such as corporate bonds, tax fee bonds, government securities, government bonds, listed debt instrument/debentures etc.
Any profit on sale of fixed income securities will be treated as STCG if such fixed income securities are held for less than 24 months and will be taxed as per income tax slab. If fixed income securities are held for more that 24 months then any gain on sale of such securities will be treated as LTCG and taxpayer would have to pay tax at 12.5% without indexation.
Comparative table of holding period for LTCG
Type of investment
Holding period
Listed Equity Share
12 months
Equity oriented Funds
12 months
Unlisted equity shares
24 months
Exchange Traded Funds
24 months
Fixed Income Securities
24 months
Fixed Income Bonds
24 months
Debt Funds
24 months
Immovable Assets
24 months
Movable asset such as Gold, Silver, valuable articles etc.
24 months
Comparative table of Tax rate applicable
Type of investment
Tax rate if STCG
Tax rate if LTCG
Listed Equity Share
20%
12.5% without indexation and after claiming exemption of 1.25 Lakhs
Equity oriented Funds
20%
12.5% without indexation and after claiming exemption of 1.25 Lakhs
Unlisted equity shares
Income Tax Slab Rate
12.5% without indexation
Exchange Traded Funds
Income Tax Slab Rate
12.5% without indexation
Fixed Income Securities
Income Tax Slab Rate
12.5% without indexation
Fixed Income Bonds
Income Tax Slab Rate
12.5% without indexation
Debt Funds
Income Tax Slab Rate
12.5% without indexation
Immovable Assets
Income Tax Slab Rate
20%
with Indexation
OR
12.5% without indexation, which ever is lower
Movable asset such as Gold, Silver, valuable articles etc.
Income Tax Slab Rate
12.5% without indexation
Impact on investment
Type of investment
investment Decision
Listed Equity Share
Since STCG is charged at higher tax rate of 20% so it is better for tax payer to hold shares and funds for more than 12 months so as to attract lesser tax liability.
Equity oriented Funds
Unlisted equity shares
If gains are higher then it would be better off to hold the investment for more than 24 months and get it taxed at 12.5%. Vice versa, if there is short amount of gain and will not go to higher tax slab then investment can be considered for short term.
Exchange Traded Funds
Fixed Income Securities
Fixed Income Bonds
Debt Funds
Immovable Assets
Long term as various exemptions are available on reinvesting in property, which are not available in STCG
Movable asset such as Gold, Silver, valuable articles etc.
Long term investment for price appreciation
SUMMARY-
The recent amendment of withdrawing indexation benefits on sale of immovable property was rolled back by finance ministry and taxpayers have been given an option to pay long term capital gain tax of lower of 20% of gain with indexation or 12.5% of gain without indexation. This roll back has given much needed relief to taxpayers.
