Union Budget 2024: FM Hikes Tax On Capital Gains, Here's Why Your Investments Will Feel The Heat

The finance minister announced that the tax rate on short term capital gains on certain financial assets shall now be increased to 20 per cent from the earlier slab of 10 per cent

The FM also proposed to raise the exemption limit for capital gains on certain financial assets to Rs 1.25 lakh per annum from the earlier threshold of Rs 1 lakh.

Source : ABPLIVE AI

Budget 2024: Finance Minister Nirmala Sitharaman announced a major change in the tax rate for capital gains on Tuesday. The minister proposed in the Union Budget that capital gains taxation needs to be simplified. 

For the same, Sitharaman announced that the tax rate on short term capital gains on certain financial assets shall now be increased to 20 per cent from the earlier slab of 10 per cent. The tax applicable on the gains from other financial assets and all non-financial assets in the short term remains unchanged. 

The Budget proposed that long term gains on all financial and non-financial assets shall attract an increased tax rate of 12.5 per cent. 

Additionally, the FM also proposed to raise the exemption limit for capital gains on certain financial assets to Rs 1.25 lakh per annum from the earlier threshold of Rs 1 lakh.

The Budget defines listed financial assets owned for over a year as long-term, while unlisted financial assets and all non-financial assets held for at least two years will be classified as long-term. Meanwhile, unlisted bonds and debentures, debt mutual funds, and market-linked debentures, irrespective of their holding period, will face tax on capital gains at the applicable rates.

The increase in the capital gains tax has caused disappointment in the market. Arpit Jain, Joint MD, Arihant Capital Markets Ltd, explained that the investors expected the government to level out the playing field for domestic and foreign investors. 

Adhil Shetty, CEO, Bankbazaar, cautioned that these changes could impact investor behaviour and dynamics in the market. "The increase in long-term capital gains tax might prompt some investors to reassess their investment strategies, particularly in assets that were previously more tax efficient. Overall, while these measures aim to boost government revenues, they could introduce a period of adjustment and uncertainty in the market," he noted.

CA Deepakraj Murarilal Lala, Founder, Deepak Lala and Company Chartered Accountants, added, "The first reaction on the union budget presented by the FM today is that of a surprise on taxation front. This was unexpected and can potentially dampen the rally on the market sin the short term."