Understanding Capital Gains Tax in India STCG vs. LTCG under the New Regime for FY 2024-25

The Indian government’s 2024 Union Budget has introduced significant changes to the capital
gains tax structure, impacting investors across various asset classes. These changes, effective
from April 1, 2024, aim to simplify the tax system and increase revenue. This article breaks
down the differences between Short-Term Capital Gains (STCG) and Long-Term Capital
Gains (LTCG) under the new regime, making it easier for you to understand and plan your
investments accordingly.
What Are Capital Gains?
Capital gains refer to the profit earned from the sale of a capital asset, such as stocks, mutual
funds, real estate, or gold. The tax on these gains depends on the duration the asset was held
before selling:
 Short-Term Capital Gains (STCG): Gains from assets held for a short duration.
 Long-Term Capital Gains (LTCG): Gains from assets held for a longer duration.
The classification of ‘short-term’ and ‘long-term’ varies depending on the asset type.

Revised Holding Periods and Tax Rates for FY 2024-25
The 2024 Union Budget has redefined holding periods and adjusted tax rates for various
assets:

1. Listed Equity Shares and Equity-Oriented Mutual Funds
    Short-Term: Held for less than 12 months.
   o Tax Rate: Increased from 15% to 20%.
    Long-Term: Held for more than 12 months.
   o Tax Rate: Set at 12.5%.
   o Exemption Limit: Increased from ₹1 lakh to ₹1.25 lakh.
2. Real Estate (Immovable Property)
    Short-Term: Held for less than 24 months.
   o Tax Rate: As per individual income tax slab rates.
    Long-Term: Held for more than 24 months.
   o Tax Rate: Reduced from 20% with indexation to 12.5% without indexation.
3. Debt-Oriented Mutual Funds
    Short-Term: Held for less than 36 months.
   o Tax Rate: As per individual income tax slab rates.
    Long-Term: Held for more than 36 months.
   o Tax Rate: Reduced from 20% with indexation to 12.5% without indexation.
4. Gold and Other Precious Metals

 Short-Term: Held for less than 36 months.
o Tax Rate: As per individual income tax slab rates.
 Long-Term: Held for more than 36 months.
o Tax Rate: Reduced from 20% with indexation to 12.5% without indexation.

Key Changes in the New Tax Regime
 Increased STCG Rate: The short-term capital gains tax rate on listed equities and
equity-oriented mutual funds has been increased from 15% to 20%.
 Reduced LTCG Rate: The long-term capital gains tax rate has been standardized at
12.5% across various assets, down from the previous 20% (with indexation).
 Removal of Indexation Benefit: The indexation benefit, which adjusted the purchase
price of assets for inflation, has been removed for long-term capital gains on real
estate, debt mutual funds, and gold.
 Higher Exemption Limit: For long-term capital gains on listed equities and equity-
oriented mutual funds, the exemption limit has been increased from ₹1 lakh to ₹1.25
lakh.

Impact on Investors
These changes have varying implications for different types of investors:
 Equity Investors: Short-term traders may face a higher tax burden due to the
increased STCG rate. However, long-term investors benefit from a reduced LTCG
rate and a higher exemption limit.
 Real Estate Investors: The removal of the indexation benefit may lead to higher
taxable gains, but the reduced LTCG rate could offset this to some extent.
 Debt Mutual Fund Investors: Similar to real estate, the removal of indexation may
increase taxable gains, but the lower LTCG rate provides some relief.
 Gold Investors: The tax treatment aligns with that of real estate and debt mutual
funds, with similar implications.

Planning Your Investments
Given these changes, investors should consider the following strategies:
 Long-Term Holding: Holding assets for longer periods can lead to lower tax rates
and higher exemption limits.
 Asset Allocation: Diversify your portfolio to balance between equity, debt, and real
estate, considering the new tax implications.
 Tax Planning: Consult with a tax advisor to understand how these changes affect
your specific situation and to plan accordingly.

Conclusion
The revised capital gains tax structure under the new regime for FY 2024-25 aims to simplify
taxation and increase revenue. While it presents challenges for short-term investors,
especially in equities, it offers benefits for long-term investors through reduced tax rates and

higher exemption limits. Understanding these changes is crucial for effective investment
planning and tax compliance.