Finance Bill, 2024, introduced in Parliament on July 23, 2024, proposes significant changes in the taxation of long-term capital gains arising from assets other than financial assets. These changes include the removal of the indexation benefit, a reduction in the tax rate from 20% to 12.5%, and a revised holding period of 24 months for assets to qualify as long-term.
1. The benefit of indexation has been altogether removed.
2. The tax rate on long-term capital gain has been reduced to 12.50% from existing rate of 20%.
3. The period of holding to qualify as a long-term asset has been by and large changed to 24 months.
The removal of indexation of cost of acquisition and cost of improvement incurred on a capital asset by the assessee is a very drastic step initiated by the Ld. Finance Minister and has huge repercussions. The said change is also going to have a major impact on the tax outflow of the assessee with respect to capital gains arising from long term capital assets. Primarily, persons holding assets for long time say 20 years or 30 years or even more than that are going to be affected by withdrawal of indexation benefit which has been in the statute for a very long time. On the contrary, the changes made would be beneficial for a person who has been holding the capital asset for comparatively shorter period, for example a period of 4 to 5 years. In such cases, the disadvantage of withdrawal of indexation will be offset by a reduction in the rate of tax from 20 to 12.5%. There was a rationale for introduction of indexation in the statute with respect to long-term capital asset and for continuing the same for so many years. The said rationale has probably been overlooked and the provision has been done away with resulting in major effect on persons holding capital asset for long durations.
The said change with respect to indexation of assets has become applicable immediately, which is arbitrary and debatable. It is resulting in applying the law without completing the process of enacting the same by Parliament, ascent by the President & its notifications as per the law. It needs to be seen whether a provision can be applied in this manner without the bill having been approved by the parliament or without going through the legal process of enactment of a law. In any case, the Finance Bill, 2024 proposes the same. This also results in an anomaly wherein a person selling a long-term capital asset on 23rd of July, 2024 has huge disadvantage as compared to the same property having been disposed of a day or two earlier. Moreover, a number of transactions which are in pipeline would also be hit by the said withdrawal.
The finance bill also proposes to do away with all the different timelines for different assets to qualify to be a long-term capital asset. It is proposed that all assets will be treated as long term capital asset in case they are held for a period of more than 24 months except for listed securities which would get the benefit of long term capital asset in case they are held for a period of more than 12 months. Reduction of tax rate from 20% to 12.50% may be beneficial in some cases however the same will not be sufficient to offset the additional burden due to removal of indexation.
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is it compulsory to invest capital gain tax on property after payment of flat rate 12.5 % as per budget 2024 ?
Buy house in 4/2016 and sale 4/2024.
using indexation govt bond 54ec already obtain. other amount used as other expence.
now unable to pay tax.
Hello @pradip_____
Thank you for reaching out to us with this question.
A significant amendment in the Bill pertains to the reinstatement of the indexation benefit for the sale of properties acquired prior to July 23, 2024. Under the revised provisions, individuals or Hindu Undivided Families (HUFs) who purchased properties before July 23, 2024, have the option to either pay Long-Term Capital Gains (LTCG) tax at a rate of 12.5% without applying indexation or to elect for the indexation benefit and incur a tax rate of 20%.
Whereas, Deduction under section 54EC will be allowed for Rs. 50,00,000/-
Does Sale of Equity Shares also come under the 24 month holding period to qualify for LTCG?
Is the 12.5% LTCG Tac applicable to LTCG from Sale of Equity Shares?
Hello @george_______________
Thank you for reaching out to us with this question.
Sale of equity shares is subject to a holding period classification, which is further divided into listed and unlisted securities. For listed securities, a holding period exceeding 12 months qualifies the gains as Long-Term Capital Gains (LTCG). Conversely, for unlisted securities, a holding period exceeding 24 months is required for the gains to be categorized as LTCG.
From FY 24-25, the limit on the exemption of Long Term Capital Gains on the transfer of equity shares or equity-oriented units or units of Business Trust is proposed to be increased from Rs.1 Lakh to Rs.1.25 lakh per year. The rate at which it is taxed is also increased from 10% to 12.5%.
Indexation is NOT removed altogether. It is still available for properties acquired prior to 01st April 2001 and gains will be taxed @ 20%.
At first thanks a lot for your inputs, a significant amendment in the Bill pertains to the reinstatement of the indexation benefit for the sale of properties acquired prior to July 23, 2024. Under the revised provisions, individuals or Hindu Undivided Families (HUFs) who purchased properties before July 23, 2024, have the option to either pay Long-Term Capital Gains (LTCG) tax at a rate of 12.5% without applying indexation or to elect for the indexation benefit and incur a tax rate of 20%.