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The Union Budget 2024 has increased the tax on short-term gains on specified financial assets to 20 per cent from 15 per cent and increased the tax on long term gains on all financial and non-financial assets to 12.5 per cent from 10 per cent.
Equity mutual funds and shares with a 12-month holding period for the long term will continue to attract a tax of 20 per cent (STCG) and 12.5 per cent (LTCG) with effect from July 23, 2024. Mutual funds with a holding of 65 per cent in debt and money market assets will be classified as long-term after being held for 24 months, the LTCG will be 12.5 per cent and STCG will be as per tax slab. The debt funds will continue to be taxed as per tax slab.
Venkat Chalasani, Chief Executive, Association of Mutual Funds in India (AMFI) said the increase in exemption limit for Long Term Capital Gains tax from ₹1 lakh to ₹1.25 lakh is a welcome change. While the changes in rates for LTCG and STCG tax were not anticipated, the markets will take them in their stride, he said. AMFI’s demand for change in the definition of ‘Specified Mutual Funds’ under Section 50AA has been acceded to and will lead to rationalisation in taxation for the funds affected hitherto, he added.
Dhawal Dalal, President & CIO-Fixed Income, Edelweiss Mutual Fund said taxation on fixed deposits, debt mutual funds, bonds, and market-linked bonds was kept unchanged. He added that this was a bit of a dampener for fixed-income investors. However, he also said, he does not expect any significant change in investor sentiment due to this.
Feroze Azeez, Deputy CEO, Anand Rathi Wealth said with the marginal increase in LTCG from 10 per cent to 12.5 per cent, long-term investors might be paying slightly higher taxes. However, with the exemption limit raised to ₹1.25 lakh, small investors will see modest benefits, he stated. The increase of STCG from 15 per cent to 20 per cent will impact short-term equity investors. Although the tax rates are marginally increased, equity mutual funds remain an attractive investment opportunity compared to other asset classes, he added.
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