Last Updated on August 6, 2024 at 11:13 pm
In response to our budget 2024 coverage – Budget 2024 Capital Gains Taxation Guide – several readers have asked us for further clarifications. This is an 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.
1. When will the new rules come into force? It will apply to all redemptions made on or after 23rd July 2024.
2. Do these new rules affect arbitrage and equity savings mutual funds? No, they are not. They will continue to be taxed like equity mutual funds with a revised STCG of 20% and LTCG of 12.5%.
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3. Will these new rules affect the equity tax-free grandfathering rule? No. The capital gain up to 31st Jan 2018 continues to be tax-free. The capital gain from 1st Feb 2018 to 22nd July 2024 (if sold between these two dates) will be taxed at 10%, with the first one lakh tax-free.
Long term capital gains (from units older than 1Y), when sold on or after 23rd July 2024, will be taxed at 12.5% with the first 1.25 Lakhs tax-free.
4 Explain debt mutual fund taxation.
- 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.
5 What are some examples of “debt mutual funds”?
Overnight funds, liquid funds, money market funds, ultra short-term funds, short-duration funds, long-duration funds, corporate bond funds, Banking and PSU funds, gilt funds, 10-Y constant maturity gilt funds, conservative hybrid funds.
A multi-asset fund holding 65% or more of bonds is also a debt fund. Note: a multi-asset fund can also be an equity-oriented fund (ICICI Multi-asset) or an “other MF” (Nippon India Multi-Asset). So, you must study the fund’s strategy and the last 12 months’ average equity or debt allocation from the redemption date!
6 What are “Other mutual funds”?
All funds that neither hold 65% or more of Indian equity nor hold 65% or more of bonds and money market instruments are classified as other mutual funds.
Examples are Gold Funds, Gold/Silver ETFs, International Funds, and fund-of-funds that are neither equity FOF nor debt FOF. Multi-asset or dynamic asset allocation funds holding greater than 35% to less than 65% equity.
- Equity FOF: A FOF holds 90% of equity funds with 90% of domestic equity.
- Debt FOF: A FOF holding 65% of debt funds with 65% of bonds or money market instruments.
7 Explain taxation of “other mutual funds”.
- 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 12.5% without indexation. STCG (< 2Y) is taxed as per slab.
- Investments after 1st April 2023.
- Redeemed between 1st April 2024 and 31st March 2025: (that is < 2Y) Always taxed at slab rates.
- Redeemed after 1st April 2025 (>2Y) taxed 12.5% without indexation.
8 How can I quickly find out the tax rule for my fund? Find out whether the fund is an equity fund, debt fund or an “other fund” and then apply the abovementioned rule.
If the asset is listed or if STT is applicable (equity MF, equity, all ETFs, Sov Gold Bonds, REITS/inVITs), then the holding period for LTCG eligibility is 1Y; else (debt mf, physical gold, real estate), it is 2Y,
9 Are Sovereign Gold Bonds affected by this change? The bonds are still tax-free on maturity. If sold within a year, as per slab, after that, 12.5% without indexation.
10 How is gold taxed?
- Sov Gold bonds: As mentioned above
- Gold ETF (Silver ETFs also): If sold within a year, as per slab, after that, 12.5% without indexation.
- Gold/Silver FOFs: If sold within two years, as per slab, after that, 12.5% without indexation.
11 How is real estate taxed?
- If sold between 1st April 2024 and 22 July 2024: Holding period (< 3Y) slab rate; 20% with indexation if > 3Y
- If sold on or after 23rd July 2024: Holding period (< 2Y) slab rate; 12.5% without indexation.