Understand impact of change in taxation of capital gains on your investment.

 In Budget 2024, the FM had reduced the period of holding of investment, remove indexation and also increase the tax rate. There is now a debate is there is a benefit to the taxpayer or it is going to increase their tax burden. In the below article, tried to capture when the changes are good to them and when not.

01.   Investment with earlier indexation benefit : In case the return of investment is more that 10.8% then new tax rules is  beneficial and in case return is less than 10.8% then old rule of indexation is beneficial as for high yielding return assets now tax rate is lower and same not being compensated by indexation. 

 

02.   Arbitrage fund & Equity:  This fund gets negative impact for two reason. One because of increase in STT and another one because of increase in rate of tax of STCG.  This will reduce of fund return post tax  by approx. 8%.

 

03.   Corporate bond fund : Purchase after April 2023 there is no change as earlier also tax rate at MMR.

 

04.   AIF: the return of AIF who deals in F&O gets impact due to increase in STT & will reduce their return.

 

05.   Buyback of shares: Shifting of incidence of taxation from company to shareholder will be positive sign for companies but not for shareholders. In the first instance, buyback taxable at MMR as same being treated as deemed dividend whereas when we sold in market, it taxed at 12.5%. further, there is no immediate allowance of cost and same being carried forward as long term capital loss. This loss cannot be set of with short term capital gain & also after 8 years, the loss will be lapsed. Looks this the new law will discourage investor to opt for buyback.