The Union Budget 2024 has brought significant updates to the tax structure affecting both resident Indians and Non-Resident Indians (NRIs), especially concerning capital gains and Tax Deducted at Source (TDS) on securities like equity shares and mutual funds. These changes, effective from July 23, 2024, will impact how investors manage their investments, whether they are long-term investors or frequent traders. Let's take a detailed look at these crucial changes.
- Key Changes in Capital Gains Tax
Capital gains tax is one of the most impacted areas, with notable revisions for both listed and unlisted equity shares, as well as equity and debt mutual funds.
- Listed Equity Shares
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Long-Term Capital Gains (LTCG):
- Before: LTCG on listed equity shares held for more than 12 months was taxed at 10%, with an exemption limit of ₹1 lakh.
- After: The tax rate on LTCG has been increased to 12.5%, and the exemption limit has been raised to ₹1.25 lakh. This means only gains above ₹1.25 lakh will be taxed at 12.5%.
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Short-Term Capital Gains (STCG):
- Before: STCG on listed shares held for less than 12 months was taxed at 15%.
- After: The STCG tax rate has increased to 20%, which will particularly affect traders who frequently buy and sell shares.
- Unlisted Equity Shares
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LTCG:
- Before: LTCG on unlisted shares held for more than 24 months was taxed at 20% with the benefit of indexation.
- After: LTCG is now taxed at a reduced 12.5%, but the indexation benefit has been removed. This will result in a higher taxable amount for long-term holdings due to the lack of inflation adjustment.
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STCG:
- There is no change in STCG taxation on unlisted shares. If the shares are sold within 24 months, they will be taxed as per the individual’s applicable income tax slab.
- Equity Mutual Funds
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LTCG:
- Before: LTCG from equity mutual funds, if held for more than 12 months, was taxed at 10%, with an exemption limit of ₹1 lakh.
- After: The tax rate has been increased to 12.5%, and the exemption limit has also been raised to ₹1.25 lakh.
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STCG:
- Before: STCG on equity mutual funds held for less than 12 months was taxed at 15%.
- After: The STCG tax rate has jumped to 20%, which will affect short-term investors in equity mutual funds.
- Debt Mutual Funds
- Before: Debt mutual funds held for more than 3 years were subject to LTCG tax at 20% with indexation.
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After: Under the Finance Act, 2023, the indexation benefit has been removed. Now, regardless of how long you hold a debt mutual fund, the gains will be taxed according to your income tax slab. This change applies even after the Union Budget 2024.
- For clarification, debt mutual funds refer to funds where less than 35% of the portfolio is invested in equity. If you hold such funds, expect tax to be based on your income tax slab, with no inflation adjustment available.
- TDS (Tax Deducted at Source) for NRIs
The TDS rates for NRIs have been updated to reflect the changes in capital gains tax. These updates will affect how capital gains are taxed for NRIs when selling listed or unlisted shares and mutual funds.
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LTCG:
- Before: TDS on LTCG from listed shares and mutual funds was 10%.
- After: TDS has been increased to 12.5% to align with the new LTCG tax rate.
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STCG:
- Before: TDS on STCG was 15%.
- After: The TDS rate for STCG has been raised to 20%.
It’s crucial for NRIs to understand that TDS is generally not applicable for resident investors, but NRIs will need to account for these changes to avoid surprises when filing taxes.
Conclusion
These new tax rules will significantly affect how both NRIs and resident Indians manage their investments in securities. Whether you are investing in listed equity shares, unlisted shares, or mutual funds, the changes in capital gains tax and TDS rates will impact your returns. It's essential to stay updated on these changes to ensure tax compliance and optimize your investment strategies accordingly.
Disclaimer: Aim of this article is to give basic knowledge about the topic to people who are not in touch with Indian tax norms. When anybody is dealing with these kinds of cases practically, he shall consider all relevant provisions of all applicable Laws like FEMA/Income Tax/RBI /Companies Act etc.
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By understanding these updates, you can make well-informed investment decisions and optimize your tax planning moving forward.