What Changed in the July 2024 Budget?
The Finance (No. 2) Act, 2024 made three major changes to capital gains taxation, all effective from 23 July 2024:
- Equity STCG up from 15% to 20%: Short-term gains on shares and equity MFs now face a 20% flat tax under Section 111A (if STT is paid). This was previously 15%.
- Equity LTCG up from 10% to 12.5%: Long-term gains above the exemption limit are now taxed at 12.5% under Section 112A. The annual exemption was raised from ₹1 lakh to ₹1.25 lakh.
- Indexation abolished for non-equity assets: The inflation-adjustment benefit that reduced taxable gains on property and debt funds is gone. LTCG on these assets is now a flat 12.5% without indexation. The only exception is property grandfathering (see below).
The Debt Fund Trap You Need to Know
This is a separate rule that started earlier but interacts with the July 2024 changes. From 1 April 2023, debt mutual funds with domestic equity exposure of 35% or less are classified as "specified mutual funds".
| When you invested | Holding period | Tax treatment |
|---|---|---|
| Before 1 April 2023 | ≤ 24 months | STCG at slab rate |
| Before 1 April 2023 | > 24 months | LTCG at 12.5% (no indexation from 23 Jul 2024) |
| On or after 1 April 2023 | Any duration | STCG at slab rate — no LTCG benefit |
This means debt funds have lost their tax advantage over fixed deposits for new investments. Consider alternatives like gilt funds, target-maturity funds, or direct government bonds if tax efficiency matters to you.
Property Seller's Checklist
Follow these steps to compute and minimize your tax:
- Compute your gain: Sale value minus purchase value, improvement costs, and transfer expenses (brokerage, legal fees, stamp duty on sale).
- Check grandfathering eligibility: Did you buy before 23 July 2024? Are you a resident individual or HUF? If yes, you get to choose.
- Compare both options: The calculator above computes both 12.5% without indexation and 20% with indexation, and recommends the cheaper one.
- Plan Section 54 reinvestment: If selling a residential house, buy another within 1 year before to 2 years after sale, or construct within 3 years. Max ₹10 crore exemption.
- Consider Section 54EC bonds as backup: If you cannot buy property, invest in NHAI or REC bonds within 6 months. Max ₹50 lakhs. Lock-in: 5 years.
- Use CGAS if needed: Deposit unutilized gains in the Capital Gains Account Scheme before your ITR due date to preserve the exemption timeline.
How the ₹1.25 Lakh Equity LTCG Exemption Works
The annual exemption of ₹1,25,000 under Section 112A is per assessee, per year, not per transaction. Here is what that means in practice:
- If you sell multiple equity holdings in the same year, the exemption is applied to your total gains.
- The exemption is applied first — only gains above ₹1.25L are taxed.
- If your total equity LTCG is below ₹1.25L, you pay zero tax.
- STCG does not consume this exemption — it is separate.
FIFO rule: When you sell part of a holding, the earliest purchased units are deemed sold first. This affects both the cost basis and the holding period.
Common Mistakes to Avoid
- Forgetting STT: Concessional equity rates (20% STCG, 12.5% LTCG) only apply if Securities Transaction Tax was paid on the transfer. Off-market transfers and some delivery-based sales may not qualify.
- Assuming all property gets indexation: Only property purchased before 23 July 2024 qualifies for the old indexation rule. New purchases get 12.5% without indexation.
- Missing the 6-month 54EC deadline: NHAI/REC bonds must be purchased within 6 months of the property sale. There is no extension.
- Not knowing 54F denial: Section 54F is completely denied if you own more than one residential house on the date of transfer.
- Ignoring surcharge and cess: The headline rate is not the final rate. Surcharge (up to 15% for equity CG, higher for others) and 4% cess apply on top.