FAQ on Capital Gain Tax Changes: In the full budget for the current financial year 2024-25, Union Finance Minister Nirmala Sitharaman announced major changes regarding capital gains. Now whether a capital gain is long term or short term will be decided by only two holding periods – 12 months and 24 months. Apart from this, tax rates have been made the same for most assets. The benefits of indexation have been abolished in the budget. However, the exemption limit of Rs 1 lakh for long term capital gains (LTCG) on assets like listed shares and mutual funds has been increased to Rs 1.25 lakh.
Short Term Capital Gains (STCG) tax has been increased to 20 per cent, and LTCG tax is now 12.5 per cent. Apart from this, Securities Transaction Tax (STT) for buying and selling of shares has been increased from 0.1 percent to 0.2 percent. If you still do not understand, then the Central Board of Direct Taxes (CBDT) has issued a FAQ in which all the questions will be answered.
First question- What changes have taken place in the taxation of capital gains?
answer- The tax system on capital gains has been further simplified on five parameters. The holding period is now only two i.e. whether the capital gain is short or long will be decided only by the holding period of one year and two years. Tax rates have been made uniform for most assets. To simplify calculations, indexation has been removed and rates have been reduced from 20 per cent to 12.5 per cent. The distinction between residential and non-residential was removed. There is no change in rollover benefits.
Second question- When will the new tax provisions come into effect or has it already happened?
answer- The new capital gains provisions will come into effect from July 23, 2024, and will be applicable to any transaction made on or after July 23, 2024.
Third question- How has the holding period been made easier?
answer- Earlier, for some assets, holding was considered long term gain only after completion of three years. However, now there are only two holding periods – one year and two years. For listed securities it is only one year, while for other assets it will be considered long term after holding for two years.
Fourth question- Who will benefit from the change in holding period?
answer- The holding period of all listed assets will now be one year. In such a situation, the holding period for listed units of Business Trusts (ReITs, InVITs) has been reduced from 36 months to 12 months. The holding period of gold and unlisted securities (other than unlisted shares) has also been reduced from 36 months to 24 months.
Fifth question- What is the holding period of immovable property and unlisted shares?
answer- As before, the holding period for immovable property and unlisted shares is 24 months.
Sixth question- What has changed in the capital assets on which STT is payable?
answer- The tax rate on short-term capital gains on listed equities, equity-oriented mutual funds and business trusts (Section 111A) has been reduced from 15 per cent to 20 per cent. At the same time, the tax rate on long term capital gains (section 112A) of these assets has been increased from 10 percent to 12.5 percent.
Seventh question- Is there any change in the exemption limit of long term capital gains under Section 112A?
answer- Absolutely. Earlier, there was no tax on long term capital gains up to Rs 1 lakh. Now it has been increased to Rs 1.25 lakh.
Eighth Question: What changes were made regarding tax on remaining long term capital gains?
answer- The tax rate on all remaining long-term capital gains under Section 112 has been reduced to 12.5 per cent without the benefit of indexation. Earlier it was at 20 percent and there was also the benefit of indexation. This will make tax calculation easier.
Ninth question- Who will benefit by removing indexation and reducing the tax rate from 20 percent to 12.5 percent?
answer- In most cases, taxpayers will get big benefits. However, where gains have been lower than inflation, the gains may be limited in some cases.
Tenth question- Will the rollover facility on capital gains continue?
answer- There is no change in rollover benefits. It remains the same as before.
Eleventh Question- In which assets can long term capital gains be invested for roll over benefits?
answer- For rollover benefits, taxpayers can invest their profits in house under section 54 or section 54F or in specified bonds under section 54EC. Complete details related to this can be seen in sections 54, 54B, 54D, 54EC, 54F, 54G of the IT Act.
Twelfth Question- Up to what amount can rollover benefit be availed?
answer- Capital gains up to Rs 50 lakh can be invested in 54EC bonds and in other cases the capital gains are exempted from tax subject to certain conditions.
Thirteenth question- What is the overall meaning of these changes?
answer- Simplifying any tax structure has many benefits such as ease of tax calculation, easier filing and easier record maintenance. Apart from this, the hassle of calculating tax at different rates for different assets will be eliminated.
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