Budget 2024: FM Hikes Long Term Capital Gains Tax Rate To 12.5%

Finance minister Nirmala Sitharaman on Tuesday (July 23) said that long-term capital gains (LTCG) on all financial and non-financial assets will now be taxed at 12.5%.

Essentially, the FM has hiked the LTCG tax rates as capital gains are currently taxed at 10%. 

In her Budget 2024-25 speech, the FM also said that the limit of exemption for capital gains will be set at INR 1.25 Lakh per year. Additionally, listed financial assets held for more than a year will now also be classified as long-term assets, said the minister. 

Meanwhile, Sitharaman also said that short-term gains on some financial assets will now attract a 20% rate instead of 15%, while those on all other assets will continue to attract the applicable tax rate.

“For benefiting lower and middle income classes, I propose to increase the limit of exemption on some financial instruments for capital gains to INR 1.25 Lakh a year… Unlisted bonds and debentures, debt mutual funds and market-linked debentures, will attract tax on capital gains irrespective of holding period,” Sitharaman added. 

The development is expected to have a direct bearing on startups as money made on the sale of unlisted equity shares after a holding period of two years is considered LTCG. 

“This (LTCG) rate earlier was 10% for STT paid listed equity shares and units of equity-oriented funds… and, for other assets, it was 20% with indexation. For bonds and debentures, (the) rate for taxation of long-term capital gains was 20% without indexation. For listed bonds and debentures, the rate shall be reduced to 12.5%. Unlisted debentures and unlisted bonds are of the nature of debt instruments and therefore any capital gains on them should be taxed at applicable rate, whether short-term or long-term,” explained a Budget document. 

The hike is expected to weigh heavily on startup employees and saddle them with additional costs associated with owning and executing stock options. 

Meanwhile, the Budget also saw FM Sitharaman announce a host of new sops for the Indian startup ecosystem, including the abolition of the angel tax and an INR 1,000 Cr venture capital fund for the space economy. 

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