Budget 2024: FM Nirmala Sitharaman Announces Immediate Hike in Short and Long Term Capital Gains Tax Rates

Budget 2024: Long-term gains on all financial and non-financial assets will attract a tax rate of 12.5 per cent instead of 10.0 per cent.

Budget 2024

Budget 2024: In what may come as somewhat of a dampener for stock market investors, Finance Minister Nirmala Sitharaman as part of her Budget speech on Tuesday announced an increase in both long-term and short-term capital gains tax.

As per definition, any profit or gain that arises from the sale of a 'capital asset' is a capital gain. Sitharaman announced that short-term capital gains on "specified" financial assets will henceforth attract a tax rate of 20 per cent instead of 15 per cent. While all other financial assets and non-financial assets shall continue to attract the "applicable tax rate".

Long-term gains on all financial and non-financial assets will attract a tax rate of 12.5 per cent instead of 10.0 per cent. On the positive side, for the benefit of the lower and middle-income classes, it was proposed to increase the limit of exemption of capital gains on certain listed financial assets from Rs 1 lakh to Rs 1.25 lakh per year.

Listed financial assets held for more than a year is classified as long-term, while unlisted financial assets and all non-financial assets will have to be held for at least two years to be classified as long-term.

"Unlisted bonds and debentures, debt mutual funds and market-linked debentures, irrespective of the holding period, however, will attract tax on capital gains at applicable rates," Sitharaman said in her Budget speech.

All these proposals will come into force immediately. Further, to bolster the Indian start-up eco-system, boost the entrepreneurial spirit and support innovation, Finance Minister Nirmala Sitharaman proposed to abolish the so-called angel tax for all classes of investors.

This was a proposal from the industry for a long time, and this announcement will drive more investments towards startups in particular. Startups function as engines of economic growth, playing a crucial role in generating new jobs, ideas, products, and services.

The move to abolish the Angel Tax also drew rare praise from the opposition. Former Finance Minister P Chidambaram said " was pleased to hear that the FM will abolish the Angel Tax. Congress has pleaded for the abolition for many years and most recently in the Congress Manifesto on page 31."

As per definition, angel tax refers to the income tax levied by the government on funding raised by unlisted companies, or startups, if their valuation exceeds the company's fair market value.

This contentious tax typically impacts angel investment the most and therefore is called the angel tax. It was introduced in 2012 by the UPA government in order to detect money laundering practices and catch bogus startups.