Budget 2024: FM hikes taxes on equity trading; STCG, LTCG, STT raised

The Union Budget has hiked taxes on equities trading in a bid to raise revenue, clampdown on speculative trading and encourage sticky investments.

Effective July 23, the long-term capital gains (LTCG) tax on all asset classes will be 12.5 per cent from the current 10 per cent. Short term capital gains (STCG) tax has been raised to 20 per cent from 15 per cent.

In 2018, the LTCG on listed equity shares was made taxable at 10 per cent.

To mitigate the blow from the increased taxes, the amount exempted from the LTCG on listed securities has been increased to Rs 125,000 a year from the earlier limit of Rs 100,000.

The proposed changes to the capital gains tax rates in the Budget are estimated to garner an additional Rs 15,000 crore to the exchequer, Revenue Secretary Sanjay Malhotra said on Tuesday.

Legal players said the higher tax will be applicable even on outstanding investments and not just on new investments, including mutual funds. However, if the gains were realised till now, then the old tax rates will be applicable.

“The proposed changes to capital gains taxation aims to simplify the system but could increase the burden on taxpayers,” said Rajesh Gandhi, partner, Deloitte India.

In a clampdown on the astronomical surge in trades in futures & options (F&O), the securities transaction tax (STT) has been increased from October 1. This is to curtail participation in the derivatives segment.

Options will now attract 0.1 per cent STT, while the same for futures will stand at 0.02 per cent. At present, the STT is at 0.062 per cent for options and 0.0125 per cent for futures.

While F&O is usually seen as a hedging opportunity, it has become akin to ‘gambling’ and making retail investors more prone to losses, according to the Economic Survey. The concerns on this have been echoed by various financial regulators.

Brokers believe that the higher charges may not completely deter investors from taking bets in F&O but could help cool down some activity, as the threshold to breakeven rises.

Some believe the higher STT will be somewhat offset by reduction in exchange turnover charges.

“This is the same date (October 1) when exchange turnover charges will be reduced. In my view, the net impact of this will be largely net neutral for the customer. STT on options will increase by Rs 3.75 per Rs 10,000 round trip premium turnover while exchange turnover charges should reduce by around Rs 3.5 to Rs 4,” said Ashish Nanda, president and head - digital business, Kotak Securities.

Some brokerages indicated that the STT collection may see a two-thirds jump henceforth if the volumes remain at current levels.

“We collected about Rs 1,500 crore of STT last year. If the volumes don't drop, this will increase to about Rs 2,500 crore at the new rates,” said Nithin Kamath, founder and chief executive officer (CEO) of Zerodha, the country’s most-profitable brokerage.

In another step towards simplification, the government has classified capital gains into two holding periods — 12 months for listed securities and 24 months for all other assets.

The change will be beneficial for investments in REITs/InvITs where the long-term period will now be 12 months and above as compared to 36 months earlier.

Debt mutual fund schemes will continue to be taxed at the investor's slab rate irrespective of the investment duration as they have been classified as 'specified funds', as per the experts.

As the new change on LTCG tax is applicable also on unlisted securities, the tax on such investments will come down from 20 per cent to 12.5 per cent. However, it may not lead to many benefits.

“In a major change, the benefit of indexation currently enjoyed by unlisted assets, including real estate, has been completely removed. This offsets to some extent the benefit of reduction in long-term capital gains tax rate from 20 per cent to 12.5 per cent,” said Gandhi.