Call Changes in capital gain taxation for AY 2025-26 – Rates, Indexation , TDS Applicability etc.
Any profits or gains arising from transfer or sale of a capital asset are called as capital gain. Capital assets means any kind of property held by a person, whether connected with their business or profession or not. It includes both tangible and intangible assets. These assets includes shares, securities, bonds, debentures, properties or other investments etc. Capital gains tax is applicable to individuals as well as businesses.
What is Capital Gain Tax?
To understand the term broadly, capital gain is the difference of sale consideration of a property reduced by the cost of acquisition or improvement of such assets. Two types of Capital Gains are there, which is Short term capital gain (STCG) and Long term capital gain (LTCG).
Budget 2024 Changes to taxation on Income From Capital Gains:
Rates of Tax on Capital Gains-
Let us understand tax rates for LTCG as well as STCG. According to the updates in Budget 2024, with effect from 23rd July 2024 tax on long term and short term Capital Gains are to be taxed as follows:
| Taxation Type | Particulars | Tax Rate |
| Long Term Capital Gain | Sale of:Listed Equity shares (If STT has been paid on purchase and sale of shares) units of equity oriented mutual fund (If STT has been paid on sale of such units)Any other case | – 12.5% (above Gain of Rs.1.25lakhs) – 12.5% (above Gain of Rs.1.25lakhs) – 12.5% |
| Short Term Capital Gain | STT not applicable caseSTT Applicable | -Normal Slab rate – 20% |
Rate for short-term STT paid listed equity, Equity oriented mutual fund and units of business trust (Section 111A) has increased from 15 to 20%. Similarly the rate for these assets for long-term (S. 112A) has increased from 10 to 12.5%.
In case of property sold after 23rd July, 2024 and where indexation benefits are not availed in the case of Long term capital Gains rate of 12.5% is to be considered. The rate of tax will be 20% in case of LTCG on property if indexation benefits are availed.
We will now understand in detail the changes related to Indexation.
After an original announcement in the Union Budget was made regarding the reduction of tax on long-term capital gains from 20% with indexation benefits to 12.5% without indexation benefits, an amendment was introduced to The Finance Bill, 2024. This amendment allows taxpayers to select the tax rate that is more advantageous for them when dealing with the transfer of immovable assets such as land and buildings acquired before 23rd July 2024.
Long term investments are essential for economic development, growth and for many such economical aspects. LTCG on transfer of such capital assets will attract taxes without indexation benefit if the property is bought after 23rd July, 2024.
Indexation adjusts the inflation hit to the cost of asset at the time of transfer of such asset. In the absence of indexation, the original purchase price will be considered for calculating gains.
capital gains on transfer of equity shares and units of equity-oriented mutual funds listed in India will now be exempt up to INR 125,000 as against the earlier limit of INR 100,000.
You can find about indexation changes in detail in an article published by us with the name “Indexation benefit restored what it means for your investments after budget revisions” where we have explained the entire amendment related to indexation and also its impact when the decision was rolled back by government regarding not allowing indexation.
Changes related to Holding period:
Holding period has been simplified. There are only two holding periods now, viz. 1 year and 2 years.
Earlier there were three holding period 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. The holding period of all listed assets will be now 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. The holding period of immovable property and unlisted shares remains the same as earlier i.e. 24 months.
TDS Applicability:
TDS applicability in capital gain scenario arises generally when a property is being sold or capital gains transactions are incurred by NRIs. When a property is being sold, the buyer is liable to deduct TDS at 1% of Sale consideration if the amount of sale consideration is more than Rs.50Lakhs. Long-term capital gains earned by NRIs are subject to a TDS of 20%.
Conclusion:
Income from Capital Gains will now be taxed at a uniform rate for majority of the asset class. In case of certain Long term capital assets the indexation benefit is still available for transactions entered after 23rd July, 2024. Changes in holding period of assets are undertaken and now there are only two holding periods for the asset classes. In general, some important changes have been done to capital taxation which will benefit the taxpayers in majority of the cases.
About Author:
CA Chinmay Shirish Agate
Chinmay Agate is a Practicing Chartered Accountant having 4+ years of experience and expertise in the field of Direct Taxation and Auditing compliances. In the past, he worked in various CA firms and comes with wide industry experience from services, retail to manufacturing to trading where he has handled various complex assignments. He has keen interest in Forex and Derivative knowledge as well as fundamental analysis.