The Budget 2024 has introduced modifications to the long-term capital gains (LTCG) tax regime, affecting how much you’ll pay on profits from your share investments.

These changes are crucial for both current and future investment strategies.

New tax rules explained

The revised tax rules have increased the LTCG exemption limit from ₹1 lakh to ₹1.25 lakh.

However, the tax rate on gains above this exemption has been raised from 10% to 12.5%.

Here’s how these changes translate into your tax liabilities:

Impact on profits of ₹4 lakh

Previously, if you purchased shares for ₹8 lakh and sold them for ₹12 lakh, generating a profit of ₹4 lakh, you would have been taxed on ₹3 lakh (i.e., ₹4 lakh – ₹1 lakh), as per Adhil Shetty, CEO of BankBazaar.com.

At the old rate of 10%, this resulted in a tax of ₹30,000.

With the new rules, you’ll be taxed on ₹2.75 lakh (i.e., ₹4 lakh – ₹1.25 lakh) at a rate of 12.5%, leading to a tax liability of ₹34,375.

“The change means you are paying nearly 15% more in taxes compared to before,” noted Adhil Shetty, CEO of BankBazaar.com.

“The increase in tax liability is a direct result of the higher rate applied to gains exceeding the new exemption limit,” he said.

Impact on larger gains

For those with substantial gains, the tax impact is even more pronounced.

If your gains amount to ₹10 lakh, the tax under the old regime would have been ₹90,000 (i.e., 10% of ₹9 lakh).

Under the new rules, your tax liability rises to ₹1,09,375, marking an additional ₹19,375 in taxes—an increase of 21.5%.

Shetty said, “This adjustment could significantly impact investors with larger gains, as the new tax rate amplifies the tax burden considerably.”

Effects on lower gains

For investors with gains below ₹2.25 lakh, the revised rules might offer a slight benefit.

For instance, if your gains are ₹2 lakh, the tax under the old regime would have been ₹10,000.

Under the new rules, this drops marginally to ₹9,375, resulting in a small saving of ₹625.

“While the increase in exemption limit is beneficial for smaller gains, it does not offset the higher tax rate for larger gains,” Shetty adds.

Long-term investment considerations

The new LTCG rules can have implications for long-term investments, such as those intended for retirement or educational expenses.

A gain of ₹1 crore, for instance, would attract a tax of ₹12.34 lakh under the revised regime.

“For those planning for retirement or large future expenses, these changes mean you’ll need to adjust your investment strategy,. You might need to increase your investment corpus by 10-15% to compensate for the higher taxes,” Shetty said.