Budget 2024: Additional Questions on capital gains taxation

Published on / By M. Pattabiraman Twitter: @pattufreefincal

Published: July 29, 2024 at 10:00 am

Last Updated on August 6, 2024 at 11:12 pm

In this article, we address some more questions readers have asked in response to Budget 2024: FAQ on capital gains taxation.

Update:  Finance Bil 2024 has been amended. Taxpayers can now choose either 12.5% without indexation or 20% with indexation, whichever is lower for LTCG on property.

Q1: “I understand that if I sold an equity mutual fund with LTCG between 1st April 2024 & 22nd July 2024 without any grandfathered unit, I could book Rs 1 lac profit without tax burden. Now, from 23rd July 24 to 31st March 2025, shall I get another 1.25 lac profit booking opportunity or 1.25lac-1lac=25k?”

Q2: “If someone has LTCG over Rs. 1 lakh or 1.25 lakh, as the case may be, for the two periods – pre-23rd July and post-23rd July, will he be entitled to a total deduction of Rs 2.25 lakh? It appears to be so.

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A:  If you had already redeemed Rs. 1 lakh worth of LTCG before the budget, you can redeem another Rs. 25K until 31st March 2024. If you have not redeemed up to the budget, you can redeem up to Rs. 1.25 lakhs. But should you even bother with this tax-harvesting dance each year? See our earlier analysis: Tax harvesting: Should I book Rs. 1 Lakh profit each year to lower Equity LTCG Tax?

Q: Will the change in LTCG in a debt mutual fund also apply to my older investments? I mean, those made before 2021? Or will it apply only to fresh investments?

A:

  • Investments before 1st April 2023.
    • Redeemed between 1st April 2024 and 22nd July 2024: LTCG period is 3Y and taxed at 20% with indexation. STCG (< 3Y) is taxed as per slab.
    • Redeemed after 22nd July 2024: LTCG period is 2Y and taxed at 12.5% without indexation. STCG (< 2Y) is taxed as per slab.
  • Investments after 1st April 2023.
    • Always taxed at slab rates regardless of when redeemed.

 Q:  With the recent changes in capital gains taxation, what will impact the returns in debt/equity mutual funds? Can you kindly share your views on this?

 A: See Budget 2024: Should I change my return expectations after the change in capital gains tax?

Q: Is Rs.125000 LTCG free, too, available to the New Tax regime?
A: Yes
Q: I heard indexation has been removed post-Budget 2024! Do we have any alternative to get indexation benefits from equity funds?
A: No!
Q: Will future investment in debt funds be taxed as per slab?
A: That can be the case for investments made after 1st April 2023!
Q: Can I shift from debt funds to hybrid funds like equity savings or dynamic asset allocation funds to pay lower taxes?
A: Never increase your portfolio risk to lower taxes. Never choose any product, only lower taxes.