From Gains to Taxes: Navigating Short and Long Term Capital Gains Post-Budget 2024

Capital gains are classified under Section 45 of the Income Tax Act, 1961. The classification into short-term and long-term depends on the holding period as defined under Section 2(42A) of the Act.

🟢 Capital Gains Tax Before Budget 2024

1. Short Term Capital Gains (STCG) Tax

– Equity Shares and Equity-Oriented Mutual Funds: Under Section 111A, short-term capital gains on the sale of equity shares and equity-oriented mutual funds were taxed at **15%.

– Other Assets (like Real Estate, Debt Mutual Funds, Gold): The gains were taxed as per the individual’s income tax slab rates under Section 48.

2. Long Term Capital Gains (LTCG) Tax

– Equity Shares and Equity-Oriented Mutual Funds: Under Section 112A, long-term capital gains exceeding ₹1 lakh in a financial year were taxed at 10% without indexation.

– Other Assets (like Real Estate, Debt Mutual Funds, Gold): Under Section 112, long-term capital gains were taxed at 20% with indexation benefits provided under Section 48.

🔴 Changes Introduced in Budget 2024

1. Short Term Capital Gains (STCG) Tax

– Equity Shares and Equity-Oriented Mutual Funds: The tax rate on STCG remains unchanged under Section 111A at 15%.

– Other Assets: The Budget 2024 introduced a standard deduction of ₹50,000 on short-term capital gains from non-equity assets under the revised provisions of Section 48.

2. Long Term Capital Gains (LTCG) Tax

– Equity Shares and Equity-Oriented Mutual Funds: The LTCG tax on equity shares exceeding ₹1 lakh under Section 112A has been increased to 12% without indexation.

– Other Assets: The LTCG tax rate under Section 112 has been reduced to 18% with indexation benefits continuing under Section 48.

🟣 Comparative Analysis with Example

Example: Sale of Equity Shares and Real Estate

– Mr. A’s Tax Calculation: The provisions under Section 111A apply for STCG on equity shares.

– Mr. B’s Tax Calculation: The provisions under Section 112 and Section 48 apply for LTCG on real estate.

🟡 Conclusion

The changes in the provisions, especially Sections 111A, 112A, 112, and 48, reflect the government’s intent to fine-tune the tax regime in line with current economic conditions. Investors must keep these provisions in mind when calculating their capital gains tax liability post-Budget 2024.