Budget 2024: A potential overhaul of capital gains taxes in the offing?

As the budget anticipation builds for its presentation in Parliament on February 1, investors are optimistic about potential reforms in capital gains taxes. Understanding the diverse tax rates and periods for different assets like equity, debt, real estate, etc., is crucial for the investors.

For short-term capital gains (STCG) on listed securities like equity shares and equity-oriented mutual funds sold within a year, a 15% tax applies if Securities Transaction Tax (STT) is paid. Long-term capital gains (LTCG) tax of 10% is imposed on gains exceeding Rs 1 lakh after holding for a year.


Unlisted shares face a 24-month STCG period, taxed at income-tax bracket rates, while LTCG (after 24 months) incurs a 20% tax with indexation benefits.

In 2023, the Finance Act altered the capital gains tax landscape for debt mutual funds, subjecting gains to income-tax rates for funds with less than 35% equity exposure. Previously, LTCG tax of 20% applied after three years.

Listed debt securities sold within 12 months face STCG tax; otherwise, LTCG tax is 20% with indexation or 10% without. Sovereign Gold Bonds (SGBs) are tax-exempt if held until maturity (eight years), with STCG or LTCG tax applicable if sold prematurely.

Unlisted debt securities require a minimum 36-month holding period for LTCG provisions. In real estate, holding periods determine whether gains are short-term (STCG) or long-term (LTCG). STCG is taxed at slab rates, while LTCG incurs a 20% tax with indexation.

Investment experts advocate for a streamlined capital gains regime, suggesting uniform holding periods, consistent long-term/short-term tax rates across asset classes, and potential changes in the base year for indexation. Rationalizing capital gains tax provisions is seen as essential for encouraging compliance and aligning with the government’s vision for taxpayer-friendly initiatives. Experts, including ICRA, emphasize the need for simplification in the capital gains taxation structure.