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Union Budget 2024: What are the changes in capital gains tax for Stocks and Mutual Funds?

This article analyses the change in taxation of stocks and mutual funds as per the Union Budget 2024.

Union Budget 2024: What are the changes in capital gains tax for Stocks and Mutual Funds?


Posted on 23 Jul 2024
Author: Sayan Sircar
Tags: Tags Budget ;  Mutual Funds ;  Tax
10 mins read
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This article analyses the change in taxation of stocks and mutual funds as per the Union Budget 2024.

Union Budget 2024: What are the changes in capital gains tax for Stocks and Mutual Funds?

This article is a part of our detailed article series on Union Budget 2024. Ensure you have read the other parts here:

📚 Topics covered:

What did Union Budget 2024 change about taxation of stocks and mutual funds?

A much-lamented move by the Finance Minister saw an increase in capital gains taxation for both stocks and mutual funds in Union Budget 2024.

Here is the excerpt from the Budget Speech:

Changes In Capital Gains Tax For Stocks And Mutual Funds In Budget 2024

Source: https://www.indiabudget.gov.in/doc/budget_speech.pdf

Union Budget 2024 rules do not apply to units sold before 1st April 2024. We are therefore discussing units sold after 1st April 2024 only. We need to keep in mind that the Union Budget 2024 applies only from 23-Jul-2024. Therefore any units already sold between 1st April 2024 and 22nd July 2024 will be taxed at the old rates. The rates image is a screenshot of the AMFI tax page as of 25th July 2024.

Here’s how we interpret these rules:

How to calculate capital gains tax on equity funds as per Union Budget 2024?

Types of assets to which this rule applies:

  • Domestic Stocks
  • Equity Mutual Funds with 65% or more domestic stocks (or arbitrage positions in domestic stocks)
  • Hybrid Mutual Funds with 65% or more domestic stocks (or arbitrage positions in domestic stocks) like arbitrage, equity savings or aggressive hybrid
  • Fund of Funds holding 90% or more in domestic ETFs

Capital gains tax calculation:

  • Short-term holding period: 365 days or less, otherwise long-term
  • Short-term capital gains tax rate: 20% (up from 15%)
  • Long-term capital gains tax rate: 12.5% (up from 10%)

No long-term capital gains tax below ₹1.25 lakhs per PAN in this category per financial year. Earlier, this limit was ₹1 lakh.

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How to calculate capital gains tax on debt funds as per Union Budget 2024?

Types of assets to which this rule applies:

  • Mutual Funds with 65% or more bonds or cash assets (like TREPs)
  • Mutual Funds with Fund of Fund Structure that invest in other debt funds or debt ETFs
  • Hybrid Funds with mostly debt allocation like conservative hybrid

Capital gains tax calculation:

  • Short-term holding period: any
  • Long-term holding period: any (no distinction with short-term)
  • Capital gains tax rate: as per slab (i.e. the highest rate applicable to the taxpayer) irrespective of holding period
  • No concept of indexation

Also read
Who is an NRI and who is not? Understanding FEMA and NRE/NRO bank accounts

How to calculate capital gains tax on other funds as per Union Budget 2024?

Types of assets to which this rule applies:

  • Any Mutual Fund not in the above two categories
  • Hybrid Funds not in the above two categories. Balanced Hybrid is a good example of this category
  • Gold/silver Mutual Funds and ETFs or Gold/Silver Fund of Funds
  • International Funds including Fund of Funds
  • India-listed ETFs that invest in international stocks
  • International stocks/ETFs held in foreign brokerages (either invested via LRS or via RSUs)

Capital gains tax calculation:

  • Short-term holding period: 2 years or less, otherwise long-term
  • Short-term capital gains tax rate: at slab rate
  • Long-term capital gains tax rate: 12.5%, no ₹1.25 lakhs deduction
  • No indexation is applicable

Note: The taxation change for LTCG on gold/silver and international funds will be applicable only from 1st April 2026 onwards. For the rest, the taxation change is applicable from 23-Jul-2024. We have covered this particular class of funds in more detail here: Budget 2024: How will international, debt and gold/silver funds get taxed going forward?.

This change will be welcomed by all where debt mutual funds, fund of funds, international funds are no longer taxed at slab as was proposed in Budget 2023: What should debt, international and gold mutual fund investors do now that these funds are taxable at slab rate?

How to calculate capital gains tax on certain hybrid funds as per Union Budget 2024?

As a special case that has a chance of causing confusion, we will cover those hybrid funds where the equity exposure is less than 65% but more than 35%. Some examples of this category are Dynamic Asset Allocation Funds, Balanced Advantage Funds and Multi-Asset Funds.

Please keep in mind that for Multi-Asset, Dynamic Hybrid and Balanced Advantage funds, we will have to look at the portfolio composition in the last 12 months from the sale date to understand which of the above three categories it belongs to.

If we assume debt fund-like taxation for these funds, we get:

For units bought before 1st April 2023

Any units sold between 1st April 2024 to 22nd July 2024 will be taxed at:

  • 20% with indexation for units older than 3 years (this is LTCG)
  • Slab rates for units newer than 3 years (this is STCG)

Any units sold between 23rd July 2024 to 31st March 2025 will be taxed at:

  • 12.5% without indexation for units older than 2 years (this is LTCG)
  • Slab rates for units newer than 2 years (this is STCG)

For units bought after 1st April 2023

Any units sold between 1st April 2024 to 31st March 2025 will be taxed slab rates irrespective of purchase date and holding period.

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This post titled Union Budget 2024: What are the changes in capital gains tax for Stocks and Mutual Funds? first appeared on 23 Jul 2024 at https://arthgyaan.com


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