The Union Budget 2024-25 has brought significant changes to the taxation of capital gains, aiming to rationalize and simplify the process. These changes impact holding periods, tax rates, and the treatment of various assets. This article will provide an in-depth analysis of the proposed revisions and their implications for taxpayers.
- Revised Holding Period: Holding period for determining whether a capital gain is short term or long term has been revised. For Listed securities , the holding period is proposed to be 12 months and for all other assets, it shall be 24 months. Thus units of listed business trust will now be at par with listed equity shares at 12 months instead of earlier 36 months. The holding period for bonds, debentures, gold will reduce from 36 months to 24 months. For unlisted shares and immovable property it shall remain at 24 months.
- Increase in tax rate for short -term capital gains on equity related investments from 15 % to 20%: The rate for short-term capital gain under provisions of section 111A of the Act on STT paid equity shares, units of equity oriented mutual fund and unit of a business trust is proposed to be increased to 20% from the present rate of 15% as the present rate is too low and the benefit from such low rate is flowing largely to high net worth individuals. Other short-term capital gains shall continue to be taxed at applicable rate.
- The tax-free limit for long-term capital gains on equity-related investments has been raised from Rs. 1 lakh to Rs. 1.25 lakh: An exemption of gains upto 1.25 lakh (aggregate) is proposed for long-term capital gains under section 112A on STT paid equity shares, units of equity oriented fund and business trust, thus, increasing the previously available exemption which was upto 1 lakh of income from long term capital gains on such assets.
- The rate of long-term capital gains under provisions of various sections of the Act is proposed to be 12.5% in respect of all category of assets:
Uniform tax rate- The government has introduced a flat 12.5% tax rate for all types of long-term capital gains in respect of all category of assets. This rate earlier was 10% for STT paid listed equity shares, units of equity-oriented fund and business trust under section 112A and for other assets it was 20% with indexation under 34 section 112.
For listed bonds and debentures, the rate shall be reduced to 12.5%. Unlisted debentures and unlisted bonds are of the nature of debt instruments and therefore any capital gains on them should be taxed at applicable rate.
- Removal of Indexation benefit: Indexation available under second proviso to section 48 is proposed to be removed for calculation of any long-term capital gains which is presently available for property, gold and other unlisted assets. The benefit of adjusting the purchase price of an asset for inflation (indexation) has been removed for all assets.
- The tax treatment for capital gains has been aligned for both resident and non-resident taxpayers.
Overall impact of above-stated changes: Higher tax rates for both long-term and short-term capital gains in the case of STT-paid listed equity shares and units of equity-oriented funds, but in the case of immovable property, unlisted shares, gold, and bonds, the rate of tax lowered from 20% to 12.5% although the benefit of indexation would no longer be available. But think about the positive side – the holding period reduced from 36 months to 24 months.
For any queries related to these changes, feel free to mail at [email protected].
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