New Tax Policies Encourage Long-Term Investments in Securities

Revenue Secretary Sanjay Malhotra announced changes to the capital gains tax on listed equities in the 2024-25 Budget, promoting long-term investment by increasing STCG and LTCG taxes. New measures aim to deter speculative trading by retail investors, emphasizing the benefits for middle and low-income groups.

On Wednesday, Revenue Secretary Sanjay Malhotra explained that the recent adjustments in the capital gains tax for listed equities aim to motivate retail investors to maintain their investments over longer periods.

The 2024-25 Budget has raised the short-term capital gains tax (STCG) on listed equities, equity-oriented mutual funds, and business trust units from 15 percent to 20 percent. Additionally, long-term capital gains (LTCG) tax on these securities has been increased from 10 percent to 12.5 percent, with an annual exemption limit of Rs 1.25 lakh, up from Rs 1 lakh.

Malhotra assured that small investors holding onto shares for more than a year will benefit from the raised LTCG exemption limit. “This measure primarily affects higher-income groups, not the middle and lower-income categories,” he noted. The increase in securities transaction tax (STT) on futures and options (F&O) conveys a message to retail investors to avoid speculative trades, as a SEBI study revealed that 9 out of 10 F&O investors incur losses. Incremental changes in STT for options and futures were also detailed in the FY25 Budget.