Budget 2024: How capital gain changes will impact mutual fund investors?
Budget 2024: Investors of mutual funds — just as equity investors — will be made to loosen their purse strings for capital gains tax as higher rates come into force with regards to STCG (20 percent against 15 earlier) as well as LTCG (12.5 per cent against 10 earlier).
In Budget 2024, provisions relating to capital gains tax were streamlined and simplified to make the calculation simpler. These provisions — rolled out with immediate effect — will impact the gains arising out of the sale of real estate and the sale of financial assets including securities, jewellery, bonds and mutual funds.
Investors of mutual funds — just as equity investors — will be made to loosen their purse strings for capital gains tax as higher rates come into force with regards to short term capital gain (20 percent against 15 earlier) and long-term capital gain (12.5 per cent against 10 earlier).
The only solace for investors is that the exemption limit has now been raised from ₹1 lakh earlier to ₹1.25 lakh now.
The new provisions will apply to the investors of financial assets as much as the investors of mutual funds.
The chief executive of AMFI (Association of Mutual Funds in India) issued a statement wherein he commended the raising of amount exempted from tax, while ruing the raising of tax rates at the same time.
“The increase in exemption limit for Long Term Capital Gains tax from ₹1 lakh to ₹1.25 lakhs is a welcome change. While the changes in rates for LTCG and STCG were not anticipated, the markets will take them in their stride,” Venkat Chalasani, Chief Executive, AMFI.
5 key provisions will impact mutual fund investors:
I. LTCG: Long-term capital gains (LTCG) tax on the sale of listed equity shares, equity-oriented mutual funds and business trust (section 112A) has been raised from 10 percent to 12.5 percent.
II. STCG: Short term capital gain (section 111A) from the sale of listed equity shares, equity-oriented mutual funds and business trust has been raised from 15 percent to 20 percent.
III. Exemption raised: The exemption limit of ₹one lakh has been raised to ₹1.25 lakh which means gains up to a maximum of ₹1.25 lakh will attract no capital gain tax.
IV. Time period: Listed financial assets held for more than a year will be classified as long term and unlisted financial assets will have to be held for at least two years to be classified as long term.
V. Debt funds: Unlisted bonds and debentures, debt mutual funds and market linked debentures, irrespective of holding period, however, will attract tax on capital gains at applicable rates.
“With the marginal increase in LTCG from 10% to 12.5%, long-term investors might be paying slightly higher taxes. Although the tax rates are marginally increased, equity mutual funds remain an attractive investment opportunity compared to other asset classes. Therefore, we do not anticipate that the change in tax rates will significantly affect the flows towards equity mutual funds,” says Feroze Azeez, Deputy CEO, Anand Rathi Wealth Limited.
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First Published:25 Jul 2024, 11:34 AM IST
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