Frequently Asked Question: New Capital Gains Taxation Regime
Table of Contents
Frequently Asked Questions – New Capital Gains Taxation Regime
Finance Minister Nirmala Sitharaman presented the full Budget for this fiscal year on July 23, announcing several significant changes to the capital gains tax regime. Here’s a comprehensive guide to the major changes and their implications:
How Capital Gains from Equity Mutual Funds and Other Assets Will Be Taxed Post-Budget 2024
Q1. What are the major changes brought about in taxation of capital gains by the Finance (No.2) Bill, 2024?
Ans. The taxation of capital gains Taxation Regime has been rationalized and simplified across five key parameters:
Key Takeaways for Investors related to Capital Gains
- Equity Mutual Funds: Long-term holding (over 12 months) is taxed at 12.5% without indexation, and short-term gains are taxed at 20%.
- Debt Mutual Funds: Gains are taxed at the investor’s applicable tax slab rate with no indexation benefit.
- Real Estate and Other Assets: Long-term gains are taxed at 12.5% without indexation, while short-term gains are taxed at the applicable slab rate.
- Rollover Benefits: Continue to be available under existing provisions. No changes have been made to rollover benefits.
- Holding Period Simplification: There are now only two holding periods – 1 year & 2 years.
- Rate Rationalization: Rates have been made uniform for the majority of assets.
- Indexation Removal: Indexation has been removed for ease of computation, with the rate reduced from 20% to 12.5%.
- Parity: There is now parity between residents and non-residents.
Q2. What is the date when the new taxation provisions come into force?
Ans. The New Capital Gains Taxation Regime provisions come into effect on 23.7.2024 and apply to any transfers made on or after this date.
Q3. How has the holding period been simplified?
Ans. Previously, there were three holding periods for considering an asset as a long-term capital asset. Now, there are only two:
- For listed securities, the holding period is 1 year.
- In case all other assets, the holding period is 2 years.
Q4. Who will benefit from the change in holding period?
Ans. Under the Capital Gian Computation of holding period for all listed assets is now one year. This reduction from 36 months to 12 months benefits holders of listed units of business trusts (ReITs, InVITs), as well as holders of gold & unlisted securities (excluding unlisted shares), which now have a holding period of 24 months under New Capital Gains Taxation Regime.
Capital Gains Taxation for Equity Mutual Funds
Capital Gains Tax Rate and Holding Period Changes After Budget 2024
| Class of Capital Asset | Holding Period for LTCG Classification | Short-Term Capital Gains Tax | Long-Term Capital Gains Tax |
| Existing Rule | Proposed Rule in Budget 2024 | Existing Tax Rates | Proposed Tax Rates After Budget 2024 |
| Listed equity shares or units of equity-oriented mutual funds / Listed units of business trusts (REITs/InVITs) | >12 months (36 months for units of business trust) | >12 months | 15% |
| Unlisted shares | >24 months | >24 months | Applicable Capital Gain Tax rates |
| Listed securities (other than units) or zero-coupon Bonds (including listed debentures/bonds) | >12 months | >12 months | Applicable Capital Gain Tax rates |
| Unlisted debentures and bonds | >36 months | >24 months | Applicable Capital Gain Tax rates |
| Market-linked debentures and debt mutual funds | >36 months | >24 months | Applicable Capital Gain Tax rates |
| Land, building | >24 months | >24 months | Applicable slab rates |
| Physical gold | 36 months | 24 months | Applicable slab rates |
| Gold ETF | 36 months | >12 months | Applicable slab rates |
| The Gold fund | 36 months | 24 months | Applicable slab rates |
| Sovereign gold bond | 36 months | >12 months | Applicable slab rates |
| Any other capital asset | >36 months | >24 months | Applicable slab rates |
Effective Dates
- Immediate (from July 23, 2024): Changes in capital gains tax rates and holding periods, except for gold and international funds.
- From April 1, 2025: Long-term capital gains on gold and international funds will be taxed at 12.5%.
Q5. What about the holding period of immovable property and unlisted shares?
Ans. The holding period for immovable property & unlisted shares remains at 24 months under the New Capital Gains Taxation Regime.
Q6. Please elaborate on the change in the rate structure for STT paid capital assets?
Ans. The rate for short-term STT paid listed equity, equity-oriented mutual funds, and units of business trusts (Section 111A) has increased from 15% to 20%. In the Same the same line rate for these assets for Long-term (Section 112A) has increased from 10% to 12.5% under New Capital Gains Taxation Regime.
Q7. Is there any change in the exemption limit for LTCG u/s 112A, which was earlier INR 1 lakh?
Ans. Yes, the exemption limit has increased from INR 1 lakh to INR 1.25 lakh. This increased exemption limit applies for Financial Year 2024-25 & subsequent years.
Q8. Please elaborate on the change in the rate structure for other long-term capital gains?
Ans. The rate for other long-term capital gains on all assets has been rationalized to 12.5% without indexation (Section 112), down from the previous 20% with indexation. This change simplifies capital gains taxation and makes computation easier.
Q9. Who will benefit by a change in rate from 20% (with indexation) to 12.5% (without indexation)?
Ans. The reduction in rate benefits all asset categories. Most taxpayers will benefit substantially, although those with gains limited relative to inflation may see limited or no benefit under New Capital Gains Taxation Regime.
Tax Rates:
-
- Short-Term Capital Gains (STCG): Taxed at 20%.
- Long-Term Capital Gains (LTCG): Taxed at 12.5% without indexation. The exemption limit for LTCG on these assets has been increased to ₹1.25 lakh per annum.
Capital Gains Taxation for Other Assets
- Holding Period:
- 12 months: Listed equity shares, units of equity-oriented mutual funds, and listed units of business trusts (REITs and InVITs).
- 24 months: Real estate, gold, unlisted shares, gold mutual funds, debt mutual fund units bought on or before March 31, 2023, and foreign equity funds.
- Special Cases:
- Debt mutual funds units bought after March 31, 2023, market-linked debentures, and unlisted bonds or debentures sold or redeemed on or after July 23, 2024, are treated as short-term assets regardless of holding period.
Tax Rates for Debt Mutual Funds and Other Assets
- Debt Mutual Funds: Holding period reduced from 36 months to 24 months. Gains are taxed as per the investor’s applicable tax slab rate, with no distinction between short-term and long-term gains.
- Other Assets:
- Short-Term Capital Gains (STCG): Taxed at the tax slab rate applicable to the investor.
- Long-Term Capital Gains (LTCG): Taxed at a flat rate of 12.5% without indexation. This replaces the previous rate of 20% with indexation for most assets.
Q10. Can the taxpayer continue to avail the rollover benefits on capital gains?
Ans. Yes, rollover Income tax benefits remain unchanged. Income Taxpayers can continue to avail this advantage under same conditions as before in the New Capital Gains Taxation Regime.
For taking rollover benefits what are the categories of LTCG.
Q11. In which assets can the LTCG be invested For taking rollover benefits what are the categories of Long Term Capital Gain ?
Ans. Taxpayers can invest their gains in houses u/s 54 or Section 54F, or in certain bonds under Section 54EC. For complete details you may refer under New Capital Gains Taxation Sections 54, 54B, 54D, 54EC, 54F, & 54G of the Income tax Act 1961.
Q12. What is the amount up to which rollover benefit is available?
Ans. Investment in 54EC bonds is up to Rs 50 lakh, & in other cases, the capital gain is exempt from tax, subject to specified conditions under Capital Gains Taxation.
Q13. What is the overall rationale for changes?
Ans. The New Capital Gains Taxation Regime changes aim to simplify Income tax structure, making compliance easier via simplified computation, filing, & Capital Gains Taxation record maintenance. It also removes differential rates for various asset classes under Capital Gains Taxation.
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