Source: Times Property (https://bit.ly/4et75Tz)

The India Union Budget 2024 has introduced a major overhaul in the capital gains tax regime. These have significant implications for most taxpayers as they have investments in shares, mutual funds, immovable property, bonds, gold, etc. The overall intent seems to reduce the complexity in capital gains computation, which was due to the various tax rates applicable on capital gains, different holding period ranging from 12 months to 36 months for asset classification, cost indexation provisions, etc. Below is the overview of the budget proposals on capital gains:

Holding period for determination of long-term or short-term capital asset

It is proposed that there will only be two holding periods, for determining whether the capital gains are short-term capital gains or long-term capital gains. For all listed securities, including units of listed business trust, the holding period is proposed to be more than 12 months and for all other assets, it is 24 months to qualify as long term capital gains. For bonds, debentures, and gold, the holding period for long-term capital gains is now set at over 24 months, reduced from 36 months. Unlisted shares and immovable property will continue to have a holding period of more than 24 months.

Rates of Tax on short-term capital gains and long-term capital gains

The budget also proposes changes to the tax rates on capital gains. For long-term capital gains, the tax rate for listed equity shares, equity-oriented mutual funds, and business trusts is set to rise to 12.5 per cent, up from the current rate of 10 per cent. Additionally, the Tax exemption of gains for the same assets is increased from Rs 100,000 to Rs. 125,000. Currently, long-term capital gains tax for non-residents is 10 per cent without any indexation benefit, which will now be increased to 12.5 per cent.

The new capital gains framework is certainly simpler but may have differing implications for different taxpayers depending upon the period of holding, the nature of the asset, the cost of acquisition vis-à-vis the selling price, etc. Taxpayers should carefully analyse the new provisions and its implications in their cases.