CBDT Explains Taxation of Capital Gains

The Central Board of Direct Taxes (CBDT) on Thursday issued FAQs to explain the new capital gains tax regime in Budget 2024-25.

Q: What are the major changes brought about in the taxation of capital gains by the Union Budget 2024-25?

A: The taxation of capital gains has been rationalised and simplified. The five broad parameters to this rationalisation and simplification are: Holding period has been simplified. There are only two holding periods now, viz. one year and two years. Second, rates have been rationalised and made uniform for the majority of assets. Third, indexation has been done away with for ease of computation with simultaneous reduction of rate from 20 per cent to 12.5 per cent. Fourth, parity between Resident and Non-resident and fifth there is no change in roll over benefits.

Q: What is the date when the new taxation provisions come into force?

A: The new provisions for taxation of capital gains came into force from 23.7.2024 and shall apply to any transfer made on or after this date.

Q: How has the holding period been simplified?

A: Earlier there were three holding periods for considering an asset to be a long-term capital asset. Now the holding period has been simplified. There are only two holding periods, for listed securities, it is one year, for all other assets, it is two years.

Q: Who will benefit from the change in holding period?

A: The holding period of all listed assets will now be one year. Therefore, for listed units of business trusts (ReITs, InVITs) holding period is reduced from 36 months to 12 months. The holding period of gold, unlisted securities (other than unlisted shares) is also reduced from 36 months to 24 months.

Q: What about the holding period of immovable property and unlisted shares?

A: The holding period of immovable property and unlisted shares remains the same as earlier i.e. 24 months.

Q: What are the changes in the rate structure for STT paid capital assets?

A: Rate for short-term STT paid listed equity and equity oriented mutual fund and units of business trust (Section 111A) has increased from 15 to 20 per cent. Similarly the rate for these assets for long-term (S. 112A) has increased from 10 to 12.5 per cent.

Q: Is there any change in the exemption limit for long-term capital gains under Section 112A which was earlier Rs 1 lakh?

A: Yes. The exemption limit of Rs 1 lakh for LTCG on these assets has also increased to Rs 1.25 lakh. This increased exemption limit will apply for FY 2024-25 and subsequent years.

Q: What are the changes in the rate structure for other long-term capital gains?

A: The rate for other long-term capital gains on all assets has been rationalised to 12.5 per cent without indexation (Section 112). This rate was earlier 20 per cent with indexation. This will aid in simplifying the taxation of capital gains and their easy computation.

Q: Who will benefit by the change in rate from 20 per cent (with indexation) to 12.5 per cent (without indexation)?

A: The reduction in the rate will benefit all categories of assets. In most of the cases, the taxpayers will benefit substantially. But where the gain is limited vis-a vis inflation, the benefit will also be limited or absent in a few cases.

Q: Can the tax payer continue to avail the roll over benefits on capital gains?

A: Yes. The rollover benefits remain the same as earlier. There is no change in roll over benefits already available under the IT Act. Therefore, tax payers who want to save on LTCG tax even with low rates can continue to avail the rollover benefits on fulfillment of conditions as applicable.

Q: In which assets, can the long-term capital gains be invested for rollover benefits?

A: For rollover benefits, tax payers can invest their gains in house under Section 54 or Section 54F or in certain bonds under Section 54EC. For complete details of all rollover benefits, please refer to Sections 54, 54B, 54D, 54EC 54F, 54G of the IT Act.

Q: What is the amount up to which rollover benefit is available?

A: Investment of capital gain in 54EC bonds (up to Rs. 50 lakh) and in other cases, the capital gain is exempt from tax, subject to certain specified conditions.