Govt Likely To Increase STCG Tax Rate In Future Beyond 20%, Says Senior Official

FM Nirmala Sitharaman presented the Union Budget 2024 on July 23. The budget increased the tax rate on short-term capital gains (STCG) for certain financial assets from 15 per cent to 20 per cent

The government might consider increasing short-term capital gains (STCG) tax rates in the future, said a senior government official, reported Moneycontrol on Wednesday. The official highlighted that profits from short-term trading—typically involving shares or mutual fund units held for under a year—should not be viewed the same as investment gains. While acknowledging that the current tax rate of 20 per cent is reasonable, the official suggested that it could be increased in the future.

"STCG is not an investment. No reason why STCG should be at 20 per cent. It can be higher," the official told the publication.

Finance Minister Nirmala Sitharaman presented the Union Budget 2024 on July 23. The budget increased the tax rate on short-term capital gains (STCG) for certain financial assets from 15 per cent to 20 per cent.

What Is STCG?

Short-term capital gains (STCG) are profits obtained from financial assets held for less than a year, while gains from assets held for more than a year are classified as long-term capital gains (LTCG). Previously, various financial assets fell under different STCG and LTCG categories. However, the latest Budget has aimed to simplify the tax system by standardising the duration and tax rates applied to these assets.

Under the new Budget 2024, the tax rate on long-term gains for all financial and non-financial assets has been set at 12.5 per cent. Previously, equities were taxed 10 per cent for LTCG and 15 per cent for STCG.

In the new tax framework, short-term capital gains on specified financial assets will be taxed at 20 per cent, while other assets will be subject to their respective tax rates. This adjustment aims to bring greater consistency to the overall tax system. Additionally, the exemption limit for long-term capital gains (LTCG) has been increased from Rs 1 lakh to Rs 1.25 lakh for the fiscal year 2024-25 and beyond. The updated system also eliminates indexation benefits for LTCG.