Tax Guide

LTCG on stocks and mutual funds: the new rules after Budget 2024.

"I've been holding mutual funds for 3 years. What tax will I pay when I sell?"

The major change to capital gains tax comes in the Budget 2024. Starting July 23, 2024, Long Term Capital Gains (LTCG) on equity mutual funds and listed shares will be taxed at 12.5%, (earlier 10%), and the exemption threshold has been increased to ₹1.25 lakh (earlier ₹1 lakh) per financial year.

As for the debt mutual funds purchased after April 1, 2023: no more indexation for LTCG! These are taxable based on your tax slab and are considered short term irrespective of the period held. This was a major hit.

As for equity: the excess gain above ₹1.25 lakh per year is taxable at 12.5%. In case you have an unrealized gain of ₹5 lakh in all the investments, you could harvest the gain of ₹1.25 lakh per year.

What the law says — exact provisions

Section 112A

LTCG on equity/equity MF: 12.5% on gains above ₹1.25L/year. Holding > 12 months. No indexation.

Section 111A

STCG on equity: 20%. Holding ≤ 12 months.

Section 112

Debt MF bought after 1 Apr 2023: taxable as per slab (STCG regardless of holding). Indexation removed.

Section 70

STCL can offset STCG and LTCG. LTCL can only offset LTCG. Carry forward 8 years.

CA Rishabh's verdict

Bottom line

Harvest ₹1.25L equity LTCG each year tax-free. Hold equity >12 months always. Debt MF is now slab-rate taxed — consider alternatives for short-term parking.