- FM Sitharaman discusses LTCG and STT, sparking speculation.
- LTCG on stocks, MFs, gold, and property explained.
- Tax rates and holding periods vary for different assets.
The Indian stock market has been trading firmly, and a commentary from Finance Minister Nirmala Sitharaman is one of the key triggers behind the uptick. Earlier, speaking at the Bloomberg New Economy Forum, the Finance Minister said that long-term capital gains tax (LTCG) and securities transaction tax (STT) are being discussed at domestic and international forums.
She further stated that there has been extensive discussion on the transaction tax and whether different asset classes should be taxed uniformly. Though, Sitharaman did not confirm any changes in capital gains tax in the next budget. Her statement fueled speculation among people if the government may abolish LTCG and STT. However, the Finance Minister only stated that investors' suggestions regarding LTCG and STT would be considered.
Let's understand how your investment in gold, the stock market, mutual funds, and property is taxed under LTCG taxation.
1. Stocks
If you hold listed equity shares for more than 12 months, the profit earned on them is considered long-term capital gain. For stocks, long-term capital gains up to Rs 1.25 lakh in a financial year are completely tax-free. Gains above this amount are taxed at a rate of 12.5 per cent.
Suppose you made a total profit of Rs 2 lakh on shares in a year. The initial Rs 1.25 lakh would be tax-free. However, the remaining Rs 75,000 would be taxed at 12.5 per cent, including cess and surcharge.
2. Mutual Funds
LTCG Tax rules on mutual funds depend on the category of the fund. Investments in equity-oriented mutual funds are subject to long-term capital gains tax if held for more than 12 months. In such a scenario as well, a gain up to Rs 1.25 lakh would be tax-free, but any earnings above that amount would be taxed at 12.5 per cent.
However, if you invest in debt mutual funds, if you purchased them on or after April 1, 2023, all profits earned are considered short-term capital gains, irrespective of holding period. In such a case, the profits will be taxable at your normal income tax slab. Additionally, you don’t get an indexation benefit.
Also Read: Sensex Skyrockets 1,533 Points, Rupee Climbs: Key Drivers Behind Market Surge
However, debt funds purchased before April 1, 2023, may be subject to 12.5% LTCG without indexation based on the old policy transition provisions.
3. Gold
If you invest in gold, the taxation is based on the mode of investment. If you purchase physical gold in the form of jewellery or biscuits, and hold them for more than 24 months, then long-term capital gains tax will apply. The LTCG for gold is a flat 12.5 per cent without indexation.
On the other hand, if you invest in gold via gold ETFs, then the long-term holding period is 12 months as they are listed securities. Whereas, if you buy gold mutual funds, LTCG tax will be applicable after holding for 24 months.
Note: You don't get the Rs 1.25 lakh long-term capital gains exemption on gold investment. If you hold it for a shorter period, short-term gains are taxed according to your tax slab.
4. Property
Investing in real estate like land, a house, or commercial property is subject to capital gains as well. If you hold the investment for more than 24 months, the profit earned is considered LTCG. Under the revised rules, long-term gains on property are taxed at 12.5 per cent without indexation.
Meanwhile, as per the rules, properties purchased before July 23, 2024, can compare two tax calculations: one at 12.5% (without indexation) and the other at 20% (with indexation) and can pay whichever is lower. Short-term capital gains tax (STCG) is applicable if the property is sold within 24 months or less.