Why Budget tweaked short- and long-term capital gains tax? It's a Rs 15,000 cr matter

The proposed changes in capital gains tax rates in the Budget are expected to generate an additional Rs 15,000 crore for the exchequer, Revenue Secretary Sanjay Malhotra said on Tuesday. Finance Minister Nirmala Sitharaman has proposed to rationalise the capital gains tax rate and holding period of various assets, including securities and immovable properties, in the 2024-25 Budget.

According to the proposal, listed financial assets must be held for more than one year, while unlisted financial assets and all non-financial assets must be held for at least two years to qualify for long-term capital gains tax.

The long-term capital gains tax for various asset classes has been reduced to 12.5 percent, except for unlisted bonds and debentures, where applicable slab rates will apply.

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Addressing the media after the Budget presentation, Sitharaman said the government wanted to simplify the approach to taxation.

”…the average taxation has come down … (to) 12.5 per cent… We have brought it down to the lowest (which) encourages investment in the market,” Sitharaman said.

However, the Budget proposes to increase short-term capital gains tax (STCG) on listed equity, equity-oriented mutual funds and units of a business trust to 20 per cent, from 15 per cent.

Malhotra said the marginal increase in capital gains tax will result in additional Rs 15,000 crore revenue.

Finance Secretary TV Somanathan said the capital gains tax regime has been made ”very, very simple” in the Budget.

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”Equities are at 20 per cent and everything else is it at the applicable rate for the short term. Yes short-term has gone up and long-term has been rationalised,” Somanathan said.

With regard to the proposed increase in securities transaction tax (STT) in Futures and Options (F&O), Malhotra said it would be effective from October 1, 2024.

STT on the sale of an option has been hiked from 0.0625 per cent to 0.1 per cent of the option premium. The sale of securities in the futures market has been increased from 0.0125 per cent to 0.02 per cent of the price at which such futures are traded.