Union Budget 2024: Capital gains tax rates raised

Nirmala Sitharaman with red `Bahi Khata`/ PTI

Finance Minister Nirmala Sitharaman announced increases in both long-term and short-term capital gains tax rates as part of the Union Budget 2024. Short-term capital gains on specific financial assets will be taxed at 20 per cent rather than 15 per cent. Long-term gains on all financial and non-financial assets will be taxed at 12.50 per cent, not 10 per cent, as previously. The annual exemption ceiling for capital gains on listed financial assets is now Rs 1.25 lakh, up from Rs 1 lakh previously.

"Short-term gains on certain financial assets shall henceforth 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," FM Sitharaman said in her Union Budget 2024 speech.

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"Long-term gains on all financial and non-financial assets, on the other hand, will attract a tax rate of 12.5 per cent. For the benefit of the lower and middle-income classes, I propose to increase the limit of exemption of capital gains on certain financial assets to Rs 1.25 lakh per year," she added.

Long-term financial assets are those that have been listed for more than a year, whereas unlisted and non-financial assets must be kept for at least two years. Unlisted bonds, debentures, debt mutual funds, and market-linked debentures will be taxed at relevant rates, regardless of the holding period.

"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. 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," Sitharaman said in her Union Budget 2024 presentation.

These changes become effective immediately.

Sitharaman also announced the elimination of the angel tax for all classes of investors to promote entrepreneurs and creativity. This measure, long sought by the industry, is likely to increase investment in startups, which play an important role in economic growth and employment creation.

Former Finance Minister P Chidambaram applauded the decision, pointing out that the Congress party's agenda called for the removal of the angel tax.

The angel tax is paid on capital raised by unlisted companies or startups whose valuation exceeds the company's fair market value. Introduced in 2012 to combat money laundering and fraudulent businesses, it had a significant influence on angel investments.

With ANI inputs