STT + LTCG + STCG Post-Budget-2024 — Equity Tax Decoded

Key decisions

1. Q1

   What changed in Budget 2024 — new equity tax rates effective July 23, 2024?

   BUDGET 2024 (Finance Act 2024) equity tax changes effective JULY 23, 2024. (1) SHORT-TERM CAPITAL GAINS (STCG, held <12 months): rate RAISED FROM 15% to 20%. Applies to equity + equity-MF + equity-oriented ETFs. (2) LONG-TERM CAPITAL GAINS (LTCG, held >12 months): rate RAISED FROM 10% to 12.5%. Same instruments. (3) LTCG EXEMPTION RAISED FROM ₹1L to ₹1.25L per FY. (4) INDEXATION BENEFIT removed (was already removed in 2018 for equity; not affected). EFFECTIVE DATE NUANCE: changes apply to SALES OCCURRING ON OR AFTER July 23, 2024. SALES BEFORE July 23, 2024 = OLD RATES (15%/10%). (5) STT rates UNCHANGED in Budget 2024 (still 0.1% delivery; 0.025% intraday; 0.0125% F&O futures sell; 0.0625% F&O options premium sell). PRACTICAL IMPACT for ₹10L equity gain LTCG: OLD = (₹10L - ₹1L exemption) × 10% = ₹90K tax. NEW = (₹10L - ₹1.25L) × 12.5% = ₹1,09,375 tax. Extra ₹19K. ON ₹50L gain: OLD ₹4.9L vs NEW ₹6.1L = ₹1.2L extra. WHO'S MOST AFFECTED: long-term investors with sustained equity allocation. SHORT-TERM TRADERS: STCG 15→20% raise is more impactful since rate jump is 5 percentage points = 33% relative increase.

2. Q2

   How does the pre/post July-23-2024 dual regime work for FY 24-25 + FY 25-26?

   FY 24-25 + FY 25-26 sales require SPLIT CALCULATION based on acquisition date + sale date. RULE: TAX RATE = rate prevailing ON DATE OF SALE (not acquisition). (1) SOLD BEFORE July 23, 2024: OLD RATE applies (LTCG 10% / STCG 15%) regardless of acquisition date. (2) SOLD ON OR AFTER July 23, 2024: NEW RATE applies (LTCG 12.5% / STCG 20%) regardless of acquisition date. NO INDEXATION CARRY for equity (was removed 2018). EXAMPLE — Investor sells in FY 24-25. (a) Bought Reliance Jan 2020 ₹500. Sold July 15, 2024 ₹1,300. LTCG ₹800 × OLD 10% rate (after exemption) = applicable rate 10%. (b) Bought Reliance Jan 2020 ₹500. Sold August 10, 2024 ₹1,350. LTCG ₹850 × NEW 12.5% rate. SAME ACQUISITION, DIFFERENT RATE — based purely on sale date. ITR FILING: ITR-2 (capital gains schedule) has SEPARATE COLUMNS for pre-July-23-2024 vs post-July-23-2024 sales — Tax software (ClearTax + TaxBuddy + IT department's prefilled ITR) handles split automatically. Manual filing requires care. RECOMMEND: download broker P&L (Zerodha + Upstox provide dated breakdown); reconcile pre/post split before ITR filing. FY 25-26 onwards: only NEW rates apply (all sales are post-July-23-2024). Simpler.

3. Q3

   How does ₹1.25L LTCG exemption work — and how to optimize?

   LTCG EXEMPTION ₹1.25L per FY (raised from ₹1L in Budget 2024). Mechanics: (1) APPLIES PER INDIVIDUAL per FY. (2) APPLIES ACROSS all equity LTCG combined — equity shares + equity MF + equity ETFs sum up. (3) FIRST ₹1.25L of LTCG = TAX-FREE. Above ₹1.25L = taxed at 12.5%. EXAMPLE: ₹2L LTCG in FY 25-26 = (₹2L - ₹1.25L) × 12.5% = ₹9,375 tax. ₹1L LTCG = ZERO tax (within exemption). HARVESTING STRATEGY (tax loss/gain harvesting). (1) END-OF-YEAR REVIEW: if your YTD LTCG is below ₹1.25L, you can SELL appreciated holdings + immediately rebuy (within minutes) to RESET cost basis at higher level — capturing ₹1.25L tax-free gain. (2) IMPORTANT: post-July-2024, no specific anti-bed-and-breakfasting rule for equity (unlike US wash-sale rules). But if obviously contrived, AO may scrutinize. CONSERVATIVE: wait 1 day between sell + rebuy. (3) FAMILY OPTIMIZATION: each FAMILY MEMBER has own ₹1.25L exemption. A couple = ₹2.5L combined annual. Adult children also separately. Plan family-portfolio LTCG to maximize exemption use. (4) AVOID LUMPY SELLS in single FY — splitting ₹3L gain across 3 FYs = 3× ₹1L exemption = ₹3L tax-free (well, with ₹0.5L still under exemption third year too). LARGE GAINS may not be splittable; small to medium definitely.

4. Q4

   What about STT — and how does it interact with capital gains?

   STT (SECURITIES TRANSACTION TAX) is SEPARATE from + ADDITIONAL TO capital gains tax. (1) STT RATES (unchanged in Budget 2024): EQUITY DELIVERY: 0.1% on buy + 0.1% on sell. EQUITY INTRADAY: 0.025% on sell (none on buy). EQUITY F&O FUTURES: 0.0125% on sell. EQUITY F&O OPTIONS: 0.0625% on sell of premium. (2) STT DEDUCTED AT SOURCE by broker on every trade; cannot be avoided or refunded. (3) STT IS NOT INCOME TAX — separate central govt levy on transaction. (4) STT DOES NOT ADD TO COST BASIS or REDUCE SALE CONSIDERATION for capital gains calculation. STT is a transaction tax, not an investment expense. (5) STT IS REQUIRED for LTCG concessional rate eligibility — Section 112A LTCG 12.5% rate ONLY APPLIES if STT was paid on both buy + sell. NON-STT transactions (off-market gifts subsequent sale, IPO ASBA, private equity exits etc.) = LTCG at 20% with indexation (special category). (6) EXAMPLE: Reliance ₹10L buy STT ₹1,000 + 5 years later ₹15L sell STT ₹1,500. Capital gain = ₹15L - ₹10L = ₹5L. NOT adjusted for STT. Tax = (₹5L - ₹1.25L exemption) × 12.5% = ₹46,875. STT of ₹2,500 is separate cost — not refunded, not deductible. (7) BROKERAGE + GST + DP charges similarly NOT deductible from capital gains for individuals (deductible for traders).

5. Q5

   What about Mutual Funds + ETFs + ULIPs — same treatment?

   POST-BUDGET-2024 INSTRUMENT-WISE TAX TREATMENT. (1) EQUITY MUTUAL FUNDS (>65% equity): same as direct equity — STCG 20% / LTCG 12.5% above ₹1.25L. STT paid at MF transaction levels. (2) EQUITY ETFs (NIFTY 50 ETF, NIFTY Bank ETF, sectoral ETFs): same as equity MFs. STCG 20% / LTCG 12.5%. (3) GOLD ETFs + INTERNATIONAL ETFs: TREATED AS DEBT post-Apr-2023 + post-Budget-2024 — slab rate regardless of holding period (no LTCG benefit). Different from gold-buyer Sovereign Gold Bond (which has LTCG 12.5% benefit on holding 12+ months + tax-free on 8-year redemption). (4) DEBT MUTUAL FUNDS (>65% debt): slab rate regardless of tenure (post-Apr-2023 Finance Act 2023). No LTCG / STCG distinction. (5) BALANCED ADVANTAGE FUNDS + EQUITY SAVINGS (65%+ equity): equity tax treatment — STCG 20% / LTCG 12.5%. (6) CONSERVATIVE HYBRID FUNDS (10-25% equity): debt tax treatment. (7) ULIPs above ₹2.5L annual premium: TAXABLE per Section 10(10D) post-FY-2021-22; gain treated as LTCG at 12.5% above ₹1L exemption (separate from ₹1.25L equity exemption). (8) FOREIGN EQUITY (US stocks via INDmoney etc.): STCG/LTCG at slab rate; not eligible for Section 112A concessional 12.5%. CRITICAL: tax-saving with arbitrage funds + ELSS still requires Section 112A eligibility — both qualify.

Top institutions + reference metrics

Source: SEBI / NSE / BSE / NSDL / CDSL / broker rate cards · FY 25-26