New Delhi:
Finance Minister Nirmala Sitharaman has announced significant changes to the capital gains tax rules on profits from selling assets, including stocks and property.
This announcement caused a major reaction in the stock market.
The Sensex dropped 1,270 points from its previous close, and the Nifty fell by 480 points.
Midcap stocks were hit the hardest, with the Nifty Midcap Index declining over 2,000 points and the Nifty Smallcap Index dropping about 1,000 points.
However, the market has since made a strong recovery from these lower levels.
The Finance Minister has increased the short-term capital gains tax on some assets to 20 percent.
For financial and non-financial assets, short-term capital gains tax will follow the income tax rate.
The long-term capital gains tax on certain special assets has been raised from 10 percent to 12.5 percent.
Additionally, the exemption limit under long-term capital gains has been increased from ₹1 lakh to ₹1.25 lakh.
The Finance Bill 2024 simplifies and rationalizes capital gains tax rules with three key changes.
There will be two holding periods: 12 months and 24 months, to determine short-term and long-term capital gains.
Securities listed on the stock exchange will have a 12-month holding period, while other assets will have a 24-month holding period.
The holding period for bonds, debentures, and gold is reduced from 36 months to 24 months.
Unlisted shares and immovable property will continue to have a 24-month holding period.
The short-term capital gains tax on equity shares and equity mutual funds has increased from 15% to 20%.
According to the Finance Bill, the previous rate was very low and mainly benefited high-net-worth individuals.
According to the Finance Bill memorandum, long-term capital gains tax is now set at 12.50% for all asset categories, up from 10% for equity shares and equity mutual funds.
Previously, property was taxed at 20% with indexation.
Under the new proposal, long-term capital gains up to ₹1.25 lakh are exempt.
For bonds and debentures, the long-term capital gains tax on listed bonds has been reduced to 12.50%, while the benefit of indexation for calculating long-term capital gains has been removed.
