Capital Gain Tax: The CEO of Zerodha, Nithin Kamath, recently brought attention to important modifications to the capital gains tax system that Finance Minister Nirmala Sitharaman revealed in Budget 2024. A broad range of investments, including stocks, mutual funds, exchange-traded funds (ETFs), and unlisted bonds, are expected to be impacted by these developments. This is a thorough explanation of the implications of these changes for investors.
Capital Gains Tax Changes Explained
Taking to Instagram, Zerodha CEO Nithin Kamath wrote, “The change in capital gains in the budget affects all your investments, from stocks, mutual funds, and ETFs to unlisted bonds. Here is a quick snapshot of how the taxation change affects your investments by @quicko_official.”
Short-Term Capital Gains (STCG) Tax
| Asset Type | Earlier Rate | Revised Rate | Holding Period |
|---|---|---|---|
| Listed Stocks & Equity MFs/ETFs | 15% | 20% | 12 months |
| Unlisted Shares | Slab rate | Slab rate | 24 months |
| Foreign Shares | Slab rate | Slab rate | 24 months |
| Debt MFs & ETFs | Slab rate | Slab rate | N/A |
| Listed Bonds | Slab rate | 20% | 12 months |
| REITs & InvITs | 15% | 20% | 12 months |
| Physical Real Estate | Slab rate | Slab rate | 24 months |
| Gold/Silver ETFs | Slab rate | 20% | 12 months |
| Physical Gold | Slab rate | Slab rate | 24 months |
Long-Term Capital Gains (LTCG) Tax
| Asset Type | Earlier Rate | Revised Rate | Holding Period |
|---|---|---|---|
| Listed Stocks & Equity MFs/ETFs | 10% | 12.5% | 12 months |
| Unlisted Shares | 20% with indexation | 12.5% | 24 months |
| Foreign Shares | 20% with indexation | 12.5% | 24 months |
| Debt MFs & ETFs | Slab rate | Slab rate | N/A |
| Listed Bonds | 10% | 12.5% | 12 months |
| REITs & InvITs | 10% | 12.5% | 12 months |
| Physical Real Estate | 20% with indexation | 12.5% | 24 months |
| Gold/Silver ETFs | Slab rate | 12.5% | 12 months |
| Physical Gold | 20% with indexation | 12.5% | 24 months |
Impact on Investors
Investors should take note of these developments since they will have an impact on the profitability of different assets over the long and short terms. Here’s a closer look at how these modifications might affect investment approaches:
- Higher STCG Tax Rates: With the short-term capital gains tax rate increasing, investors might be discouraged from short-term trading and might prefer holding assets longer to benefit from lower long-term tax rates.
- Increased LTCG Tax: Investors must reevaluate their long-term investment strategy in light of the increase in the long-term capital gains tax to 12.5%, particularly for assets like equities, mutual funds, and exchange-traded funds (ETFs) that were previously subject to a lower tax rate.
- Holding Periods: For listed assets, the holding period remains at 12 months to qualify for long-term capital gains. For unlisted assets and physical real estate, the holding period is 24 months to qualify for long-term capital gains.
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