Capital Gains Tax: What to Expect in Union Budget on Feb 1

As the Union Budget is set for February 1, capital gains taxation remains a closely watched area for equity, mutual fund, and asset investors. Currently, capital gains are taxed under clearly defined slabs, and any change will have a direct impact on the market.

Current capital gains tax structure (as of now):

• Equity Short-Term Capital Gains (STCG): Taxed at 15% if shares or equity mutual funds are sold within 12 months.

• Equity Long-Term Capital Gains (LTCG): Taxed at 10% on gains exceeding ₹1.25 lakh, if held for more than 12 months.

• Debt Mutual Funds (post April 2023): Gains are taxed as per the individual’s income tax slab, with no indexation benefit.

• Real Estate LTCG: Taxed at 20% with indexation if the property is held for more than 24 months.

What is being expected or discussed ahead of the budget:

• LTCG exemption limit hike – There is expectation that the equity LTCG exemption limit may be raised above the current ₹1.25 lakh, which would benefit small investors.

• Rate stability likely – The 15% STCG and 10% LTCG rates on equity are widely expected to remain unchanged to avoid market disruption.

• Uniform holding periods – Rationalisation of holding periods (12 months vs 24 months) across asset classes is being discussed for better tax simplicity.

• Debt taxation clarity – Investors are watching for clearer guidelines on debt mutual fund taxation after the removal of indexation.

• Focus on simplicity over cuts – With larger tax reforms expected in the next financial year, this budget may focus more on clarity rather than changing percentages.

Overall, the budget is expected to maintain capital gains tax rate stability while addressing concerns about thresholds and simplification.