As capital gains tax rates change, here's how much income tax you will pay now on Rs 5 lakh mutual fund earnings

Union Budget 2024: During her budget speech on Tuesday (July23, 2024), Nirmala Sitharaman made two important announcements related to capital gain tax rates that will have a huge impact on the mutual fund earnings of an investor. She increased the long term capital gains tax (LTCG) from 10 per cent to 12.50 per cent and the short term capital gains (STCG) tax from 15 per cent to 20 per cent. There is one relaxation for mutual fund investors with a holding period of more than a year. The exemption limit has been increased from Rs 1 lakh to Rs 1.25 lakh.

Krishan Mishra, CEO, FPSB India, says, "The recent hike in the long-term capital gains (LTCG) tax rate from 10% to 12.5% and the adjustment of short-term capital gains (STCG) taxation to 20% for certain financial assets is a concern. However one year above into long term is an important step towards encouraging long-term investments, despite the slight negative impact of the increased rates."

Umeshkumar Mehta, CIO, SAMCO Mutual Fund, says: "Mutual Fund investors had a great party time post COVID given the extraordinary returns they have made, so there should be no reason to complain about incremental share of taxes @2.5% from profits going forward. So long as the rates are limited to 12.5% it should be fine, but if this is the beginning of raising the taxes further then investors would not take it well as tax investor-friendly policies. However, increasing short term taxes to 20% will make investors more disciplined towards long-term investing."

Short term capital gains tax is applied when you hold a mutual fund investment for less than a year, while long term capital gains tax is applied when the holding period is more than a year.

In this write-up, know how much STCG and LTCG you have to pay on capital gains of Rs 5 lakh in an equity mutual fund scheme.

STCG Calculator: Tax on Rs 5 lakh capital gains

Here, we are assuming that you already fall into the income tax bracket and that capital gains from the equity mutual fund are not your only yearly income.

In such a situation, if you earn Rs 5 lakh in a year, you get no tax exemption, and at the rate of 20 per cent, your STCG will be Rs 1 lakh.

Earlier, at 15 per cent, your STCG would have been Rs 75,000. So, you have to pay Rs 25,000 extra now.

LTCG Calculator: Tax on Rs 5 lakh capital gains

Since under the new rules, you get a tax exemption of Rs 1.25 lakh, you will be taxed only on Rs 3.75 lakh.

At the rate of 12.50 per cent, your LTCG will be Rs 46,875.

Under the old LTCG rules, you would have got a Rs 1 lakh exemption.

It means, your taxable income would have been Rs 400,00. At the rate of 10 per cent, your LTCG would have been Rs 40,000.

Higher Securities Transaction Tax (STT) to be levied on equity F&O

Apart from capital gains tax, the finance ministry has also levied Securities Transaction Tax (STT) on equity futures and options. Here are the key changes-

• The STT rate has been increased in the budget to reduce F&O transactions.
• The STT rate on options sale has been increased from 0.0625 per cent to 0.1 per cent.
• The STT will be applicable on options premium at the rate of 0.1 per cent.
• The STT on futures sale will be 0.02 per cent instead of 0.0125 per cent.
• Increased STT rates on F&O will be applicable from 1 October 2024