GUWAHATI: The day Union Finance Minister Nirmala Sitharaman announced the budget for 2024-25, the market took a plunge because the increase in capital gains tax was viewed as a negative aspect for the investors and the 5% increase in Short Term Capital Gains (STCG) tax is likely to adversely impact short-term investors in the near term.
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The capital gains tax for shares will rise from 10% to 12.5%, which will reduce post-tax returns by 2.5%. The elimination of indexation has raised fears of a significant tax burden for taxpayers and the potential for increased illicit financial activities in property deals.
A Guwahati-based tax consultant and chartered accountant talking to GPlus said, “All is not well in this year’s budget for investors and property owners,” adding that Income Tax assessees are also not much happy. He said, “I will give you one example. Let's say a person has purchased a property worth Rs 55 lakh in 2011 and he sells in 2024 for 1.3 cr. His capital gain is 75 lakh without indexation and on that new tax rate at 12.5%, so tax liability will be Rs. 9,30,750.
In indexation era his capital gain would be 21.49 lakh with factors 363/184, so at 20% old tax rate, his tax would have been 4.29 lakh. So tax has doubled due to this change.” He also said that TDS on interest and remuneration paid to partners over Rs 20000 per annum is now introduced under section 194T. This is again increasing the compliance burden on the taxpayers.
A mutual funds expert and financial adviser, director of Invest Asia Sandeep Jain talking to GPlus explained that earlier the profits on the sale of listed shares and units of equity-oriented schemes of mutual funds held for twelve months or less were treated as short-term capital gains and were taxed at flat 15% under Section 111A if Securities Transaction Tax (STT) has been paid on the same.
If the same was held for over twelve months, the profits were treated as long-term capital gains and were taxed at a flat rate of 10% beyond the initial ₹1 lakh. He said that this was earlier taxed at zero rate and came tax-free under Section 112A without any benefit for indexation. Jain said, “This budget proposed increasing the short-term capital gains on these investments from 15% to 20% and the tax rate on long-term capital gains from 10% to 12.50%,” adding that this is not favourable for investors.
With effect from October 1, 2024, the Securities Transaction Tax (STT) on futures is proposed to be increased from 0.0125% to 0.02%, and the STT on options has been proposed to be increased from 0.0625% to 0.1%. Jain said this will also impact the investment in stock markets.
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STT is a kind of financial transaction tax which is similar to tax collected at source (TCS). STT is a direct tax levied on every purchase and sale of securities that are listed on the recognised stock exchanges in India. STT is governed by the Securities Transaction Tax Act (STT Act), and the STT Act has specifically listed down various taxable securities transactions i.e., transactions on which STT is liveable.
A businessman of Guwahati talking to GPlus said, “We are already paying tax on the income we earn after working hard. After paying the tax we invest from our savings and on the returns of the investments the taxes are increasing,” adding that it is just further burdening our entire earnings
