 "Budget 2024 hikes LTCG tax rate to 12.5%, STCG to 20%, STT on F&O also up")
Long-term capital tax in Union Budget 2024-25: Finance Minister Nirmala Sitharaman, on Tuesday, July 23, 2024, increased long-term capital gains (LTCG) tax under Union Budget 2024-25. The LTCG tax rate was hiked to 12.5 per cent from 10 per cent on all financial and non-financial assets.
Sitharaman also hiked short-term capital gains (STCG) tax on "certain" financial securities to 20 per cent from 15 per cent.
"Listed financial assets held for more than a year will be classified as long-term, while unlisted financial assets, held for more than two years, will be classified as long-term asset," Sitharaman said in the Parliament on July 23.
That said, Sitharaman said the limit of long-term cap tax gains exemption will be hiked to Rs 1.25 lakh from Rs 1 lakh in certain cases.
Earlier, long term capital gains (LTCG) tax on the sale of these asset classes stocks, mutual funds, real estate etc. was levied when the holding period of the asset is over one year, whereas short-term capital gains (STCG) was levied when the sale of stocks, mutual funds, real estate etc. is made within one year from the date of purchase.
"The recent changes in the Union Budget, particularly the increase in STCG and LTCG tax signal a significant shift. While the market's initial reaction may seem bearish, we believe these changes will ultimately foster a more stable and mature investment environment," said Vaibhav Porwal, co-founder, Dezerv.
He added: The widening gap between STCG and LTCG rates is a clear incentive for longer-term holdings. This move is also a step towards standardising taxation across various asset classes, potentially simplifying the investment decision-making process for many.
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The market is currently responding with a short-term perspective, particularly concerning the Securities Transaction Tax (STT) adjustments in derivatives. This will undoubtedly impact the profitability of frequent traders. However, we encourage investors to look beyond immediate market reactions and consider the long-term benefits of a tax structure that promotes patient capital.”
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Additionally, 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 said.
Union Finance Minister Nirmala Sitharaman presented the first Budget of the Narendra Modi-led government in Delhi. This was also her seventh record Budget presentation.
Union Budget 2024: Tax on buybacks
Finance Minister Nirmala Sitharaman said share buybacks, announced by companies, will be taxed in the hands of the recipient.
Union Budget 2024: Securities transaction tax on F&O trades
Finance Minister Nirmala Sitharaman, on Tuesday, hiked securities transaction tax (STT) on futures and options of securities.
"Security transaction tax on F&O of securities is proposed to be increased to 0.02 per cent and 0.01 per cent. Second, I propose to tax income received on buyback of shares in the hands of recipients," she said.
The proposal comes amid market regulator Securities and Exchange Board of India's (Sebi's) growing call against riisng F&O volumes. At a recent event, Seci Chairperson Madhabi Puri Buch said the rising volumes in the derivatives segment have now become a macro-economic issue instead of being a risk concentrated to only a few individual investors.
The market regulator is planning to issue a consultation paper to curb the turnover in the derivatives marketm, she added.
"There was no reduction or removal of the Securities Transaction Tax (STT), which is perceived as unfair to equity investors. However, the increase in STT on derivatives is a positive step towards curbing excessive speculation in futures and options (F&O) markets," said Sunil Damania, Chief Investment Officer, MojoPMS.
How stock markets reacted?
On the bourses, the BSE Sensex slumped 1,278 points in the intraday trade to hit a low of 79,224. The Nifty50, on the other hand, hit a low of 24,074.
The BSE MidCap and SmallCap indices, meanwhile, dropped up to 3.96 per cent in the intraday trade.