Capital Gains on Shares

While it is well-known that income from salaries, rentals, and business activities is taxable, what about the income generated from buying and selling shares? The Union Budget 2024 introduced major changes in the taxation of capital gains on shares, affecting both short-term and long-term investors.

The recent changes in the provisions of capital gains tax on shares are part of the government's broader efforts to streamline tax policies and increase revenue while encouraging long-term investment in the stock market. 

Here we will explore the key updates to capital gains introduced in the 2024 budget and their implications for investors.

Understanding Capital Gains on Shares

Before diving into the specific changes, it is essential to understand what capital gains on shares are and how they are classified:

• Short-Term Capital Gains (STCG) arise when shares are sold within 12 months of purchase.
• Long-Term Capital Gains (LTCG) are realised when shares are sold after holding them for more than 12 months.

The tax treatment for these gains varies significantly, with different rates and exemptions applicable depending on the holding period.

Key Changes in Regulations Related to Capital Gains on Shares in the Union Budget 2024

The Union Budget 2024 has introduced several significant amendments, effective from FY 2024-25:

• Revised Holding Period for Listed Securities

The holding period for all listed securities has been standardised at 12 months. Any listed security held for more than 12 months will now be classified as Long-Term. For all other assets, the holding period is 24 months.

• Simplified Holding Periods

Assets will now be classified as long-term or short-term based on only two holding periods: 12 months and 24 months. The budget has omitted the previous 36-month holding period.

• Increase in Exemption Limits for Long-Term Capital Gains

To benefit lower and middle-income classes, the exemption limit for long-term capital gains on shares, equity-oriented units or units of Business Trust has been increased from ₹1 lakh to ₹1.25 lakh per year. However, there has been an increase in the capital gains tax rate from 10% to 12.5%.

• Increased Short-Term Capital Gains Tax

The short-term capital gains tax on shares, units of equity-oriented funds and units of business trusts has been raised from 15% to 20%.

Investors must stay informed about these changes and adapt their strategies accordingly to optimise their tax outcomes and maximise their returns in the evolving financial landscape.

Whether you are a short-term trader or a long-term investor, understanding the new rules is essential for navigating the stock market effectively.