How Equity Taxation Impacts your Investments?

Equity is all about investing in the ownership of companies by buying their shares. When you own equity, your investment is directly linked to the company’s success. If the company grows and performs well, your shares can increase in value, potentially leading to significant financial gains. Equity investments offer the opportunity to benefit from the company's profits and growth, and they often provide the chance for long-term wealth accumulation.

Investing in equity can be exciting because you become a part-owner of the company and can potentially share in its success. Over time, as companies expand and innovate, the value of your equity can rise, making it a powerful tool for building your financial future. 

BSE (Bombay Stock Exchange): It’s one of the main stock markets in India where people buy and sell shares of companies.

NSE (National Stock Exchange): Another big stock market in India, similar to BSE, where shares are traded.

Taxation on Sale of Equity before July 23,2024:

If you sell your shares before July 23, 2024, here's how the tax works:

• Short-Term: If you held the shares for less than 12 months, you pay a tax of 15% on the profit.
• Long-Term: If you held the shares for more than 12 months, you pay a tax of 10% on the profit. However, you get an exemption of up to ₹1 lakh on the profit. This means you don’t pay tax on the first ₹1 lakh of your long-term capital gains.

Taxation on Sale of Equity after July 23, 2024:

If you sell your shares after July 23, 2024, here’s how the tax will work:

• Short-Term: If you held the shares for less than 12 months, you’ll pay a tax of 20% on the profit.
• Long-Term: If you held the shares for more than 12 months, you’ll pay a tax of 12.5% on the profit. You also get an exemption of up to ₹1.25 lakh on the profit, meaning you won’t pay tax on the first ₹1.25 lakh of your long-term gains.

1. Short-Term Capital Gains (Before 23rd July 2024) – 15% Tax

Case Study:
Investor: Rohan invests in equity mutual funds on 1st January 2024.
Investment Amount: ₹2,00,000
Redemption Date: 10th July 2024
Value on Sale: ₹2,50,000
Capital Gain: ₹50,000 (since it is redeemed within a year, it's a short-term capital gain)
Tax Liability: 15% of ₹50,000 = ₹7,500

Explanation: Rohan sold his mutual funds before 23rd July 2024, and his gain of ₹50,000 falls under short-term capital gains. He needs to pay 15% tax on this profit, which amounts to ₹7,500.

2. Long-Term Capital Gains (Before 23rd July 2024) – 10% Tax Above ₹1 Lakh

Case Study:
Investor: Priya invested ₹5,00,000 in shares on 15th July 2021.
Redemption Date: 1st July 2024 (holding period over 1 year)
Value on Sale: ₹7,00,000
Capital Gain: ₹2,00,000 (since it is held for more than a year, it's a long-term capital gain)
Tax Liability: 10% on gains above ₹1,00,000 = 10% of ₹1,00,000 = ₹10,000
Explanation: Priya made ₹2,00,000 in long-term capital gains. She will pay 10% tax only on gains above ₹1 lakh, meaning she is taxed on ₹1,00,000, which results in ₹10,000 of tax.

3. Short-Term Capital Gains (After 23rd July 2024) – 20% Tax

Case Study:
Investor: Akshay invested ₹3,00,000 in equity mutual funds on 10th January 2024.
Redemption Date: 25th August 2024 (less than one year holding period)
Value on Sale: ₹3,50,000
Capital Gain: ₹50,000 (short-term capital gain as sold within a year)
Tax Liability: 20% of ₹50,000 = ₹10,000

Explanation: Akshay sold his mutual fund units after 23rd July 2024, which means the new short-term tax rate of 20% applies. His profit of ₹50,000 will be taxed at 20%, leading to a ₹10,000 tax liability.

4. Long-Term Capital Gains (After 23rd July 2024) – 12.5% Tax Above ₹1.25 Lakh

Case Study:
Investor: Meena invested ₹10,00,000 in shares on 1st May 2022.
Redemption Date: 30th July 2024 (more than 1 year holding period)
Value on Sale: ₹13,00,000
Capital Gain: ₹3,00,000 (long-term capital gain)
Tax Liability: 12.5% on gains above ₹1.25 lakh = 12.5% of ₹1,75,000 = ₹21,875
Explanation: After the 23rd July 2024 deadline, long-term capital gains are taxed at 12.5% on amounts exceeding ₹1.25 lakh. Meena’s gain above this threshold is ₹1,75,000, resulting in ₹21,875 tax.

Disclaimer- The above information provided is for educational purpose only and should not be constructed as Financial or Tax advice. Please consult your Tax Advisor for more details.