Income Tax: LTCG Exemption on Equity Shares and Mutual Funds Raised to Rs. 1.25 Lakh for FY 2024-25
In the FY 2024-25, there have been important changes in the rules regarding the capital gains tax. These changes came in effect on July 23, 2024 just after the Union Budget 2024 was presented following the Lok Sabha election. This new rules is applicable to all types of capital assets including equity shares, mutual funds, real state and gold.
Taxpayers should be careful while calculating their capital gains. If any asset was sold before July 23, 2024, the old capital gains rules will apply. But if the sale happened on or after July 23, 2024, the revised rules will be used.
Individuals who sold listed stocks or equity mutual funds during the FY 2024-25 are wondering about the maximum exemption limit for long-term capital gains. The exemption limit has been increased from Rs. 1 lakh to Rs. 1.25 lakh for LTCG from listed equity and equity mutual funds. But this benefit comes with a change in the tax rate. Prior, the LTGC above the exemption limit was taxed at 10% but now it is taxed at 12.5%. Also, the short-term capital gains (STCG) tax rate has gone up from 15% to 20%.
Confusion is rising among the taxpayers regarding the old Rs. 1 lakh exemption limit will apply to gains made before July 23, 2024 or not, also whether the new tax rates will apply only after that date. The exemption limit of Rs 1.25 lakh will apply for the entire FY 2024-25, no matter if the shares or mutual funds were sold before or after July 23, 2024. So, while filing the ITR for AY 2025-26, the LTCG exemption will be Rs 1.25 lakh for all transactions during FY 2024-25.
This exemption limit is common for both listed equity shares and equity mutual funds. Which means the long term capital gains are added together from these sources and only gains above Rs. 1.25 lakh will be taxed.
There is no such exemption384556 for short-term capital gains. So, if there is any STCG from listed equity shares or equity mutual funds then it will be fully taxable, no matter the amount.
But the tax rates will be different according to the date of sale. If the listed shares or equity mutual funds were sold before July 23, 2024, the LTCG will be taxed at 10%. But if the sale was made on or after July 23, 2024 then the new rate of 12.5% will be applicable. This same rule applies for STCG. If STCG is earned before July 23, 2024 then it will be taxed at 15% and those earned on or after that date will be taxed at 20%.
If the total income (excluding LTCG and STCG) is below the basic exemption limit for residential individuals and Hindu Undivided Families (HUFs), then the shortfall can be adjusted against capital gains.