• By ADMIN
• Posted 24 Jul, 2024
• 2676
• 0

Simplifying Capital Gains Tax: What You Need to Know About the New Changes

Introduction

The Finance Bill 2024 introduces three key changes aimed at streamlining this complex area of tax under Capital gains provisons. Let's break down these changes in a way that everyone can understand.

Key Changes in Capital Gains Taxation

1. Simplified Holding Periods

   One of the major changes is the simplification of holding periods for determining capital gains tax rates. There are now only two holding periods:
   - 12 months for listed securities (like shares and mutual funds)
   - 24 months for all other assets (such as unlisted shares and real estate)

   This change means that if you hold listed securities for more than 12 months, your gains will be considered long-term. For other assets, the holding period to qualify for long-term capital gains tax is 24 months.

2. Revised Tax Rates

   - Short-Term Capital Gains: For equity-oriented mutual funds and business trusts, the tax rate on short-term capital gains will increase from 15% to 20%. This adjustment aims to address concerns that the current rate benefits high-net-worth individuals disproportionately.
   - Long-Term Capital Gains: The tax rate on long-term capital gains from listed shares (where Securities Transaction Tax or STT is paid) will rise from 10% to 12.5%. Additionally, the exemption limit will increase from Rs. 1 lakh to Rs. 1.25 lakhs. For bonds and debentures, the long-term capital gains tax rate will decrease from 20% to 12.5%.

3. Changes in Indexation Benefits

   The Finance Bill 2024 also proposes to remove the indexation benefit for long-term capital gains, which previously allowed taxpayers to adjust the purchase price of an asset for inflation. This change is aimed at further simplifying the tax computation process.

4. Bringing Parity in Taxation

The new bill also seeks to align the taxation rates for both resident and non-resident taxpayers. Corresponding amendments have been proposed to several sections of the Income-tax Act (like 115AD, 115AB, 115AC, 115ACA, and 115E) to ensure consistency and fairness in how long-term and short-term capital gains are taxed.

Conclusion

These changes reflect a thoughtful approach to making capital gains taxation more straightforward and equitable. By simplifying holding periods, revising tax rates, and removing indexation benefits, the government aims to make the tax system more transparent and easier to navigate for everyone. This rationalization of provisions is a positive step towards a more efficient tax system that benefits all taxpayers.