Sponsored
    Follow Us:
Sponsored

Under the Finance Act, 2024, several amendments have been made to various sections related to capital gains. Two key amendments, in particular, came into effect from July 23, 2024, which we are covering in this article:

1. Removal of indexation on Long-Term Capital Gain (LTCG) calculations.

As per the Income Tax Act,1961 read with Finance Act, 2024, rates for capital gain of capital assets are as follows:

Period Class of Assets
Listed Equity
U/s 112A
Other Assets
(Incl. Unlisted Shares) u/s 112
Immovable Property U/s 112
Before 23rd July,2024 10% 20% with Indexation 20% with Indexation
On or after,

23rd July,2024

12.50%** 12.5% without indexation Lower of:

12.5% without indexation or
20% with Indexation*

* Indexation on the sale of immovable property is available only if the following conditions are met:

  • Assessee must be a residential Individual or HUF.
  • The property was purchased before 23rd July 2024 and sold on or after 23rd July 2024.

** Additionally, the LTCG exemption limit under Section 112A for listed equity shares has been increased from INR 1,00,000 to INR 1,25,000 for FY 2024-25.

The following example demonstrates how a resident individual or HUF might compute capital gains on sale of immovable property.

Amendment regarding capital gain under Income Tax Act,1961

Example 1:

Mr X (residential Ind) sells his house in Mumbai for INR 1,25,00,000 on 1st October 2024. The property was purchased on 25th February 2020 at INR 90,00,000. He renovated the house on 11st April 2021 which was completed by August 2021. The overall cost of renovation amounted to INR 7,00,000..

Example 2:

In continuing with the above example, we change the cost of acquisition from INR 90,00,000 to INR 95,00,000.

Example 3:

In continuing with the above example, let’s assume the cost of acquisition to be INR 65,00,000

Example 4:

In continuing with the above example, let change the Full value of consideration to be INR 80,00,000

Solution:

Calculation of Capital Gain without Indexation:

Particulars Example 1 Example 2 Example 3 Example 4
Amount (INR) Amount (INR) Amount (INR) Amount (INR)
Full value of consideration 1,25,00,000 1,25,00,000 1,25,00,000 80,00,000
Less: Cost of Acquisition 90,00,000 95,00,000 65,00,000 90,00,000
Less: Cost of Improvement 7,00,000 7,00,000 7,00,000 7,00,000
Long-term Capital Gain/(Loss) 28,00,000 23,00,000 53,00,000 (17,00,000)

Calculation of Capital Gain with Indexation:

Particulars Example 1 Example 2 Example 3 Example 4
Amount (INR) Amount (INR) Amount (INR) Amount (INR)
Full value of consideration 1,25,00,000 1,25,00,000 1,25,00,000 80,00,000
Less: Indexed Cost of Acquisition 1,13,04,498 1,19,32,526 81,64,360 1,13,04,498
Less: Indexed Cost of Improvement 8,01,577 8,01,577 8,01,577 8,01,577
Long-term Capital Gain 3,93,924 (2,34,103) 35,34,063 (41,06,076)

Calculation of Tax Liability on Capital Gain:

Particulars Example 1 Example 2 Example 3 Example 4
Amount (INR) Amount (INR) Amount (INR) Amount (INR)
Tax charge @ 12.5% without Indexation 3,50,000 2,87,500 6,62,500
Tax charge @ 20% with Indexation 78,785 7,06,813
Tax to be paid (Lower of the above) 78,785 6,62,500
Losses to be carried forward Nil Nil, since the sale value is higher than the cost Nil 17,00,000

 

From the given scenario in example 2, we can infer that long-term capital losses incurred through indexation cannot be carried forward unless there is an actual loss where the Sale value is less than the Purchase price. Thus, in Example 4, losses can be carried forward because there are actual losses.

In Example 3, we see that a 12.5% tax rate without indexation proves advantageous, demonstrating that when property values rise significantly, this amendment can offer tax benefits.

2. Change in holding period determining the classification of Capital assets u/s 2(42a).

The number of months required to classify a capital asset as long-term:

Class of assets Prior 23/7/24 On or after 23/7/24
No. of Months No. of Months
Listed Security (other than a unit), Unit of Unit trust of India, Unit of Equity Oriented fund or zero-coupon bond 12 12
Unlisted shares or Immovable property 24 24
Units of Business Trust and Other Listed Units 36 12
Other assets 36 24

Authors: CA Shreyans Dedhia | Email id: [email protected] | Contact: 9870925375 | LinkedIn Profile Krish Rathore LinkedIn Profile

Sponsored

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

Leave a Comment

Your email address will not be published. Required fields are marked *

Sponsored
Sponsored
Sponsored
Search Post by Date
November 2024
M T W T F S S
 123
45678910
11121314151617
18192021222324
252627282930