The Union Budget 2024 has brought about significant changes to tax laws affecting both resident Indians and Non-Resident Indians (NRIs). These changes primarily impact capital gains tax and Tax Deducted at Source (TDS) for investments in securities such as equity shares and mutual funds. Effective from July 23, 2024, these updates are important for investors to understand, as they will influence the taxation of long-term and short-term capital gains on various investment instruments.
In this article, we will break down the key changes to capital gains tax and TDS, and explain how they will affect your investments, whether you are a long-term investor or an active trader.
- Key Changes in Capital Gains Tax
- Listed Equity Shares
- Long-Term Capital Gains (LTCG):
- Before: LTCG on listed equity shares held for over 12 months was taxed at 10% above ₹1 lakh.
- After: The tax rate has increased to 12.5%, and the exemption limit has been raised to ₹1.25 lakh. Only gains exceeding ₹1.25 lakh will now be taxed at 12.5%.
- Short-Term Capital Gains (STCG):
- Before: STCG on listed equity shares held for less than 12 months was taxed at 15%.
- After: The STCG tax rate has increased to 20%.
- Unlisted Equity Shares
- Long-Term Capital Gains (LTCG):
- Before: LTCG on unlisted shares held for over 24 months was taxed at 20% with the benefit of indexation.
- After: LTCG is now taxed at 12.5%, but the indexation benefit has been removed. This could result in higher taxable gains for long-held shares due to the absence of inflation adjustments.
- Short-Term Capital Gains (STCG):
- No Change: STCG from unlisted shares (held for less than 24 months) will still be taxed based on the individual’s income tax slab rate.
- Equity Mutual Funds
- Long-Term Capital Gains (LTCG):
- Before: LTCG on equity mutual funds held for more than 12 months was taxed at 10% above ₹1 lakh.
- After: The tax rate has been increased to 12.5%, with the exemption limit raised to ₹1.25 lakh.
- Short-Term Capital Gains (STCG):
- Before: STCG on equity mutual funds held for less than 12 months was taxed at 15%.
- After: The STCG tax rate has increased to 20%.
- Debt Mutual Funds
- Changes Effective from Finance Act 2023 (Not 2024):
Prior to April 1, 2023, LTCG on debt mutual funds held for more than 3 years was taxed at 20% with indexation. However, under the Finance Act 2023, the indexation benefit was removed.- Current Taxation: Now, gains from debt mutual funds will be taxed based on the individual’s income tax slab, regardless of how long the investment is held.
This rule continues to apply after the Union Budget 2024. Debt mutual funds refer to those where less than 35% of the investment is in equity.
- TDS (Tax Deducted at Source) for NRIs
For NRIs, the TDS rates on capital gains have been aligned with the new tax rules.
- Long-Term Capital Gains (LTCG):
- Before: 10% TDS on LTCG from listed shares and mutual funds.
- After: TDS is now 12.5%, in line with the new LTCG tax rate.
- Short-Term Capital Gains (STCG):
- Before: 15% TDS on STCG.
- After: The TDS rate for STCG has increased to 20%.
It’s important for NRIs to be aware that TDS is typically not applicable to resident investors, but NRIs must account for these updates to avoid any discrepancies when filing taxes.
Wrap-Up
These are the key changes to capital gains tax and TDS that will impact both resident Indians and NRIs. Whether you're investing in listed equity shares, unlisted shares, or mutual funds, these tax updates will affect your returns.
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.
If you have any further questions or need assistance, feel free to reach out to us at admin@ushmaassociates.com or info@nricaservices.com, or contact us via call/WhatsApp at +91 9910075924.
Stay informed and plan your investments wisely to navigate these changes effectively and ensure smooth tax compliance.
