The Income Tax Department has recently rolled out a major update on capital gains taxation that directly impacts millions of investors in equity markets and mutual funds. These changes, effective from July 23, 2024, redefine how Long-Term Capital Gains (LTCG) and Short-Term Capital Gains (STCG) are taxed, depending on the type of asset and the taxpayer category.
For investors in equities, mutual funds, and even foreign bonds, understanding these updated tax rules is essential for accurate financial planning and compliance.
The Income Tax Department clarified that not all income is taxed at the same rate. Certain asset classes attract special tax rates, especially when gains are made from equities or mutual funds.
Here's a breakdown of the revised LTCG and STCG tax structure across key asset categories:
Applicable to: All taxpayers
Asset types:
Equity shares
Equity-oriented mutual funds
Business trust units
Tax rate:
15% if sold before July 23, 2024
20% if sold on or after July 23, 2024
Applicable to: All taxpayers
Asset types:
Equity shares
Equity-oriented mutual fund units
Business trust units
Tax rate:
10% on gains exceeding ₹1.25 lakh if sold before July 23, 2024
12.5% on gains exceeding ₹1.25 lakh if sold on or after July 23, 2024
Applicable on:
Interest income from foreign currency bonds
Dividends
Royalties
Technical service fees
Global Depository Receipts (GDRs)
Tax rate:
10% to 20% on dividends, royalties, and interest
LTCG from GDRs and bonds:
10% if sold before July 23, 2024
12.5% if sold on or after July 23, 2024
Note: These provisions apply only to NRIs and foreign companies, not resident taxpayers.
No. Even if you’re following the old tax regime, deductions under sections like 80C (PPF, life insurance, home loan principal) and 80D (health insurance premiums) do not apply to capital gains income. These benefits are not available when calculating LTCG or STCG liabilities.
The basic exemption limit still applies for resident individuals and Hindu Undivided Families (HUFs), but not for NRIs or foreign entities.
New Tax Regime: Income up to ₹3 lakh is tax-free
Old Tax Regime: Income up to ₹2.5 lakh is exempt
This exemption is only relevant if capital gains are the sole source of income. If your gains exceed the exemption threshold, you must pay the special tax rates applicable to LTCG or STCG.
These recent changes by the Income Tax Department make it crucial for investors to reassess their tax strategies, especially when timing the sale of mutual fund units or stocks. Whether you are an Indian resident, an NRI, or a foreign investor, being aware of these updated rates and conditions will help you avoid tax surprises and stay compliant.
If you're unsure how these new rules affect your portfolio, it’s a good idea to consult with a qualified tax advisor or chartered accountant.
