Sitharaman, Nirmala Sitharaman, Bahi-khata
The Finance Minister today announced changes to the capital gains tax structure in India. The tax on long-term capital gains (profits from selling assets held for more than two year) has been increased from 10 per cent to 12.5 per cent.
For listed financial assets, the holding period to qualify for long-term capital gains has been kept at more than one year.
Short-Term Capital Gains Tax: If you sell a financial asset within a year of purchase, it's considered short-term, and the tax rate on the profit is 20 per cent.
In essence, holding an investment for a longer period now attracts a higher tax, while short-term gains continue to be taxed at a higher rate of 20 per cent.
Short term gains on certain financial assets will now attract a tax rate of 20 per cent, while that on all other financial assets and all non-financial assets shall continue to attract the applicable tax rate.
Long term gains on all financial and non-financial assets will attract a tax rate of 12.5 per cent. Listed financial assets held for more than a year will be classified as long term, while unlisted financial assets and all non-financial assets will have to be held for at least two years to be classified as long-term.
However, unlisted bonds and debentures, debt mutual funds and market linked debentures, irrespective of holding period, however, will attract tax on capital gains at applicable rates. She has also proposed to increase the exemption limit for capital gains on certain financial assets to Rs 1.25 lakh per year.
"While there are no major benefits for taxation of long term capital gains, there is some benefit for the taxpayers dealing with specific financial assets where the proposal is to tax such short term gains at 20%. Also, the small and marginal taxpayers will also encourage the increase in exemption limit from Rs 1.00 lakh per year to Rs 1.25 lakh per year," said S. R. Patnaik, Partner (Head - Taxation), Cyril Amarchand Mangaldas.
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“The FM has proposed increase in rate of tax on both short term and long term gains from certain financial assets. In past few years substantial investments have been made by the retail investors in financial markets. Change in rates of tax will likely have significant impact on the sentiments of retail investors with respect to consistency in tax policy and doubt that even higher taxes may be imposed in future," said Sandeep Chilana Managing Partner, CCLaw.
Over the long term, the higher LTCG tax rate may discourage long-term investments in equity markets, as the after-tax returns would be lower. This could affect the overall growth and liquidity of the market.
Long-term capital gains on securities were previously eliminated by the then Finance Minister when the Government introduced the Securities Transaction Tax (STT) in its place. Now, investors have to deal with both the STT and capital gains tax, which seems like the Government is reneging on its previous commitments.
Additionally, the Finance Minister did not announce any grandfathering of gains accumulated to date. This means the higher rate of 12.5 per cent will apply to all capital gains accrued over the years, not just those from now onward, effectively increasing an investor's tax burden by 20 per cent. I believe the Government should act fairly and at least allow for grandfathering of capital gains accumulated so far," said Ankit Jain, Partner, Ved Jain & Associates
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FAQs
Capital gains tax rate 2024
| Tax rate | Single | Married filing jointly |
|---|
| 0% | $0 to $47,025 | $0 to $94,050 |
| 15% | $47,026 to $518,900 | $94,051 to $583,750 |
| 20% | $518,901 or more | $583,751 or more |
Aug 16, 2024
The benefit of indexation works best when your holding period is longer. For a holding period of 5 years, long-term capital gains tax on debt funds can come down from 20% to 6-7%. This is how indexation helps you to save tax on long-term capital gains from debt mutual funds and enhance your earnings.
Is long term capital gains tax 10 percent? ›
There are only three tax rates for long-term capital gains: 0%, 15% and 20%, and the IRS notes that most taxpayers pay no more than 15%. High earners may also be subject to a 3.8% net investment income tax, which could bring the maximum tax rate for long-term capital gains to as much as 23.8%.
How to avoid LTCG tax on mutual funds? ›
By keeping withdrawals below Rs. 1 lakh per year, you may avoid LTCG tax altogether. Selling at the right time: For gains: Consider selling some units before your total LTCG for the year reaches Rs. 1 lakh. This requires monitoring your portfolio and market conditions.
At what age do you not pay capital gains? ›
Since there is no age exemption to capital gains taxes, it's crucial to understand the difference between short-term and long-term capital gains so you can manage your tax planning in retirement.
How to avoid paying capital gains tax? ›
An easy and impactful way to reduce your capital gains taxes is to use tax-advantaged accounts. Retirement accounts such as 401(k) plans, and individual retirement accounts offer tax-deferred investment. You don't pay income or capital gains taxes at all on the assets in the account.
What is the 6 year rule for capital gains tax? ›
Here's how it works: Taxpayers can claim a full capital gains tax exemption for their principal place of residence (PPOR). They also can claim this exemption for up to six years if they move out of their PPOR and then rent it out. There are some qualifying conditions for leaving your principal place of residence.
Is long-term capital gain without indexation 10? ›
Moreover, tax at @ 10% will be levied only on LTCG on shares/units of equity oriented fund exceeding Rs 1 lakh in one financial year without the benefit of indexation.
Do long-term capital gains count as income? ›
While capital gains may be taxed at a different rate, they're still included in your adjusted gross income (AGI) and can affect your tax bracket and your eligibility for some income-based investment opportunities.
What will be the tax brackets for 2024? ›
Tax brackets 2024 (taxes due April 2025)
| Tax rate | Single | Married filing jointly |
|---|
| 10% | $0 to $11,600 | $0 to $23,200 |
| 12% | $11,601 to $47,150 | $23,201 to $94,300 |
| 22% | $47,151 to $100,525 | $94,301 to $201,050 |
| 24% | $100,526 to $191,950 | $201,051 to $383,900 |
3 more rowsMay 30, 2024
Types of income that are not wages include capital gains, gifts, inheritances, investment income, and jury duty pay.
What is the cut off for long term capital gains tax? ›
For the 2024 tax year, individual filers won't pay any capital gains tax if their total taxable income is $47,025 or less. The rate jumps to 15 percent on capital gains, if their income is $47,026 to $518,900. Above that income level the rate climbs to 20 percent.
How to pay 0 capital gains tax? ›
Capital gains tax rates
A capital gains rate of 0% applies if your taxable income is less than or equal to: $44,625 for single and married filing separately; $89,250 for married filing jointly and qualifying surviving spouse; and.
How to reduce capital gains tax on shares? ›
You may be able to reduce your capital gain if you either:
- owned your shares for at least 12 months.
- gifted them to a deductible gift recipient, provided both. they are valued at less than $5,000. you acquired them at least 12 months earlier.
Exemptions under Section 112A:
₹1 lakh of LTCG in a financial year is exempt from tax. This incentivizes long-term equity investments. If you reinvest the entire LTCG amount within six months into specified bonds like Capital Gains Bonds (CGBs), National Highways Infrastructure Development Corporation Ltd.
What are the new tax brackets for 2024? ›
Head of household
| Tax rate | Taxable income bracket | Tax owed |
|---|
| 10% | $0 to $11,600. | 10% of taxable income. |
| 12% | $11,601 to $47,150. | $1,160 plus 12% of the amount over $11,600. |
| 22% | $47,151 to $100,525. | $5,426 plus 22% of the amount over $47,150. |
| 24% | $100,526 to $191,950. | $17,168.50 plus 24% of the amount over $100,525. |
3 more rowsMay 30, 2024
The 2024 standard deduction for head of household is $21,900. People who are 65 or older can take an additional standard deduction of $1,950 for single and head of household filers and $1,550 for married filing jointly, married filing separately, and qualifying spouse filers.
What are current long-term capital gains rates? ›
The long-term capital gains tax rates are 0 percent, 15 percent and 20 percent, depending on your income. These rates are typically much lower than the ordinary income tax rate.
 "Budget 2024-2025: Long-term capital gains tax increased to 12.5% from 10% (1)")
