Will LTCG exemption on equity, equity mutual funds be Rs 1 lakh or Rs 1.25 lakh while filing ITR for FY 2024-25 (AY 2025-26)?

The financial year 2024-25 saw changes in the capital gains taxation rules. The new regulations kicked in on July 23, 2024, right after the Union Budget 2024 was announced, following the Lok Sabha Elections in April and May 2024. As new capital gains rules for all assets, such as houses, equity, mutual funds, and gold, came into effect from July 23, 2024, taxpayers will need to be careful when calculating capital gains. If you sold an asset before July 23, 2024, then the old capital gains rule will apply. The revised rules will typically apply to any capital asset sold on July 23, 2024, onwards.
If you have sold any listed stocks or equity mutual funds during the financial year 2024-25, then you must be wondering about the maximum LTCG exemption you can claim. The good news is that the maximum LTCG exemption limit for listed equity and equity mutual funds has been raised to Rs 1.25 lakh from Rs 1 lakh earlier. However, the tax rate on LTCG for listed equity stocks and equity mutual funds has been increased from 10% to 12.5%. In case of short term capital gains (STCG) the rate has been raised from 15% to 20%.

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Many taxpayers are confused as to whether they will get only Rs 1 lakh LTCG exemption if they sold their equity or equity mutual fund holdings before 23 July 20224. Another confusion is regarding the new tax rate whether the increased tax rate will be applicable on all redemptions or only on those done on or after 23 July 2024.

ET Wealth online tells you the maximum LTCG exemption on listed equity and equity mutual funds, tax rate while filing income tax return for FY 2024-25 (AY 2025-26).

LTCG exemption on equity: Rs 1 lakh or Rs 1.25 lakh on listed equity, equity mutual funds

According to tax experts, the LTCG exemption on listed equity and equity mutual funds will be Rs 1.25 lakh. This limit will be applicable on an aggregate basis irrespective of whether the assets were sold before or after July 23, 224.

S. Vasudevan, Executive Partner, Lakshmikumaran Sridharan Attorneys, says, “For AY 2025-26 (FY 2024-25), the exemption limit in respect of LTCG from the sale of listed equity shares or equity mutual funds is Rs 1.25 Lakhs. This limit applies for the entire fiscal year, regardless of whether the sale occurred before or after July 23, 2024. Further, in respect of any short-term capital gains (STCG) arising from listed equity shares or equity mutual funds, there is no exemption limit. In other words, tax will be payable even on STCG irrespective of the amount of such gain.”

Gopal Shah, CA & Partner – Direct Tax at N. A. Shah Associates LLP, says, “No tax shall be charged on the LTCG up to Rs. 1,25,000 from listed equity and equity mutual funds. While calculating this limit, the aggregate of LTCG for the entire financial year, regardless of whether the sale occurred before or after July 23, 2024, will be considered. The long-term capital gains under Section 112A are exempt from tax up to Rs. 1,25,000 irrespective of whether the taxpayer is paying tax under the old capital gains or the new capital gains rules.”

Amarpal Chadha, Tax partner, EY India, says, “The limit of Rs 1.25 lakh is common for listed equity and equity mutual fund transactions undertaken pre and post July 23, 2024. Accordingly, the exemption limit will be Rs 1.25 lakh.”

LTCG at 10% or 12.5%? STCG at 15% or 20?

The aggregate limit for LTCG exemption on listed equity and equity mutual funds will be Rs 1.25 lakh irrespective of the date of sale. However, the tax rate will differ depending on the date of sale.

Bohra says, “LTCG from sale of listed equity shares, units of equity mutual funds, or units of business trusts where STT is paid at the time of acquisition and/or at the time of transfer, shall be charged to tax @ 12.50% where transfer is on or after July 23, 2024 and @10% where transfer is before July 23, 2024.”

Vasudevan says, “Even the tax rate on short-term capital gains (STCG) from listed equity and equity mutual funds will depend on the date of the transfer. STCG accrued before July 23, 2024, will be taxed at 15% and on or after July 23, 2024, will be taxed at 20%”

Source: Lakshmikumaran & Sridharan Attorneys

“In case the total income of a resident individual or HUF other than LTCG and STCG on listed equity shares or equity mutual funds is below the maximum amount not chargeable to income tax (i.e. Rs. 2.5 L under old regime and Rs. 3 L under new regime), then only that LTCG and STCG as reduced by such shortfall shall be subjected to tax,” says Vasudevan.