Budget 2024: Decoding changes in tax slabs & capital gains

The budget is one of the most anticipated events for taxpayers each year. The recently announced Budget 2024 brings some significant changes to taxation policies - everything from income tax relief to adjustments in capital gains tax rates and holding periods for different assets. Let’s take a closer look at how these changes could affect your investment planning.

Changes in tax structure under the new regime

To make the new tax regime more attractive, the Budget proposed changes to the tax slabs and an increase in the standard deduction for salaried individuals.

The revised structure maintains the income exemption up to ₹3 lakh but updates the tax slabs. The second slab now covers income from ₹3 lakh to ₹7 lakh, up from ₹6 lakh. The third slab extends from ₹7 lakh to ₹10 lakh, instead of ₹9 lakh. The fourth slab now ranges from ₹10 lakh to ₹12 lakh. The other slabs remain unchanged.

Additionally, the standard deduction for salaried individuals has been increased to ₹75,000 from ₹50,000. As a result of all these changes, a salaried employee in the new tax regime can save upto ₹17,500 in taxes. These changes will be effective from April 1, 2024.

Changes in Income tax slabs		Tax rate
Earlier	Revised	Tax rate
₹0-3 lakh	₹0-3 lakh	Nil
₹3-6 lakh	₹3-7 lakh	5%
₹6-9 lakh	₹7-10 lakh	10%
₹9-12 lakh	₹10-12 lakh	15%
₹12-15 lakh	₹12-15 lakh	20%
Above ₹15 lakh	Above ₹15 lakh	30%

Simplification of capital gains tax and holding period

Budget 2024 sought to simplify the capital gains tax treatment for taxpayers. Capital gains are usually categorised as short-term or long-term depending on the holding period. Previously, different investment products had varying holding periods to qualify as short-term capital gains (STCG) or long-term capital gains (LTCG).

For example, capital gains from listed equity shares, listed bonds, and equity mutual funds are considered long-term if held for over 12 months. In contrast, gains from unlisted bonds and gold were classified as long-term if held for more than 36 months.

The new capital gain tax framework simplifies the process by introducing just two holding periods: 12 months and 24 months. These changes aim to make calculating capital gains tax less complex. The key proposed changes include:

Uniform holding periods of 12 months for listed securities and 24 months for all other assets.
LTCG on listed securities proposed to be taxed at a flat rate of 12.5% without the benefit of indexation, and the same tax rate applies to other assets (like property, gold, listed bonds), thereby standardising tax treatment across asset classes.
Indexation, which allowed taxpayers to adjust the purchase price of an asset for inflation, is no longer available under the new capital gain tax framework.
The exemption limit for LTCG on equity shares and equity MFs increased from Rs 1 lakh to Rs 1.25 lakh per year. The STCG tax rate on these hiked from 15% to 20%, irrespective of the tax slab.
STCG from all assets, except listed stocks and equity MFs, will be taxed as per your applicable tax slab rates.

Asset	Old			New
Asset	Holding period (months)	STCG tax rate	LTCG tax rate	Holding period (months)	STCG tax rate	LTCG tax rate
Listed equity shares / preference shares	12	15%	10%	12	20%	12.5%
Unlisted equity shares / preference shares	24	Slab rate	20%*	24	Slab rate	12.5%
Listed bonds / debentures	12	Slab rate	10%	12	Slab rate	12.5%
Equity-oriented Mutual Funds	12	15%	10%	12	20%	12.5%
Debt-oriented Mutual Funds	NA	Slab rate	Slab rate	NA	Slab rate	Slab rate
Immovable property	24	Slab rate	20%*	24	Slab rate	12.5%
Gold	36	Slab rate	20%*	24	Slab rate	12.5%

These new rates are applicable from July 23, 2024. *with indexation

Also Read: Importance Of Year Round Tax Planning

Wrapping up

Budget 2024 introduces several pivotal changes aimed at simplifying the tax system, improving compliance, and fostering a better investment climate. With the streamlined capital gains tax regime, reduced complexities and more predictable tax liabilities, you can better plan your finances.

The revised tax rates and holding periods are scheduled to take effect from July 23, 2024. It is important for taxpayers to stay informed and adjust their investment strategies accordingly. Please note that these changes are still proposals and will become effective only after the Finance Bill is approved by Parliament.

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