New Income Tax Rules for Capital Gains: What Equity and Mutual Fund Investors Must Know About LTCG and STCG Updates

The Income Tax Department has recently rolled out a major update on capital gains taxation that directly impacts millions of investors in equity markets and mutual funds. These changes, effective from July 23, 2024, redefine how Long-Term Capital Gains (LTCG) and Short-Term Capital Gains (STCG) are taxed, depending on the type of asset and the taxpayer category.

For investors in equities, mutual funds, and even foreign bonds, understanding these updated tax rules is essential for accurate financial planning and compliance.

What’s New in the Capital Gains Tax Framework?

The Income Tax Department clarified that not all income is taxed at the same rate. Certain asset classes attract special tax rates, especially when gains are made from equities or mutual funds.

Here's a breakdown of the revised LTCG and STCG tax structure across key asset categories:

✅ Short-Term Capital Gains (STCG) – Section 111A

• Applicable to: All taxpayers

• Asset types:

  • Equity shares

  • Equity-oriented mutual funds

  • Business trust units

• Tax rate:

  • 15% if sold before July 23, 2024

  • 20% if sold on or after July 23, 2024

✅ Long-Term Capital Gains (LTCG) – Section 112A

• Applicable to: All taxpayers

• Asset types:

  • Equity shares

  • Equity-oriented mutual fund units

  • Business trust units

• Tax rate:

  • 10% on gains exceeding ₹1.25 lakh if sold before July 23, 2024

  • 12.5% on gains exceeding ₹1.25 lakh if sold on or after July 23, 2024

Taxation on Foreign Bonds and GDRs – For NRIs ✅ Section 115A and 115AC (For NRIs and Foreign Companies)

• Applicable on:

  • Interest income from foreign currency bonds

  • Dividends

  • Royalties

  • Technical service fees

  • Global Depository Receipts (GDRs)

• Tax rate:

  • 10% to 20% on dividends, royalties, and interest

  • LTCG from GDRs and bonds:

    • 10% if sold before July 23, 2024

    • 12.5% if sold on or after July 23, 2024

Note: These provisions apply only to NRIs and foreign companies, not resident taxpayers.

Can You Claim Deductions Under Sections 80C and 80D?

No. Even if you’re following the old tax regime, deductions under sections like 80C (PPF, life insurance, home loan principal) and 80D (health insurance premiums) do not apply to capital gains income. These benefits are not available when calculating LTCG or STCG liabilities.

Who Gets Basic Tax Exemption?

The basic exemption limit still applies for resident individuals and Hindu Undivided Families (HUFs), but not for NRIs or foreign entities.

• New Tax Regime: Income up to ₹3 lakh is tax-free

• Old Tax Regime: Income up to ₹2.5 lakh is exempt

This exemption is only relevant if capital gains are the sole source of income. If your gains exceed the exemption threshold, you must pay the special tax rates applicable to LTCG or STCG.

Final Thoughts

These recent changes by the Income Tax Department make it crucial for investors to reassess their tax strategies, especially when timing the sale of mutual fund units or stocks. Whether you are an Indian resident, an NRI, or a foreign investor, being aware of these updated rates and conditions will help you avoid tax surprises and stay compliant.

If you're unsure how these new rules affect your portfolio, it’s a good idea to consult with a qualified tax advisor or chartered accountant.