Garima Agrawal
Long Term Capital Gain Tax Changes in Budget 2024
Selling my property has always been a mix of excitement and worry. The chance to unlock my investment’s value is tempting. But, the looming capital gains tax has often made me hesitant. The Union Budget 2024-25 changed this, offering relief and clarity for taxpayers like me.
The changes in capital gains tax in the latest budget mark a new era. The government has simplified taxation and improved financial planning. Now, long-term capital gains tax is a flat 12.5% without indexation, making real estate and share investments easier to handle.
These changes, along with the Interim Budget 2024 initiatives, aim to bring stability and predictability to taxes. They empower taxpayers to make informed decisions and plan their financial futures with confidence.
Key Takeaways
- The long-term capital gains tax rate has been set at a flat 12.5% for all asset classes, simplifying the tax structure.
- The short-term capital gains tax on listed equity shares, business trust units, and equity-oriented mutual funds has increased from 15% to 20%.
- The holding period for certain assets, such as unlisted business trust units and debt mutual funds, has been reduced from 36 months to 24 months.
- The exemption limit for long-term capital gains under Section 112A has been increased from ₹1 lakh to ₹1.25 lakh for the fiscal year 2024-25 and subsequent years.
- The new taxation provisions for capital gains came into effect on July 23, 2024, and apply to transfers made on or after that date.
Change in Long Term Capital Gain Tax in Budget 2024
The Union Budget 2024-25 made big changes to capital gains tax. It aims to make things simpler and help taxpayers. The main changes are new tax rates for short-term and long-term gains. There’s also a higher exemption limit for some financial assets.
New Tax Rates for Short-Term and Long-Term Capital Gains
Short-term capital gains now have a 20% tax rate. This applies to listed equity shares, units of business trust, and equity-oriented mutual funds. It affects investors who hold these assets for less than 12 months.
For long-term gains, the budget suggests a flat 12.5% tax rate without indexation. This is for all assets, except land and/or buildings bought before July 23, 2024. This change simplifies the tax structure, removing the need for different rates and indexation based on asset type.
Increased Exemption Limit for Certain Financial Assets
The exemption limit for long-term capital gains on equity shares, equity-oriented units, or Business Trust units has been raised. It now stands at ₹1.25 lakh per year, up from ₹1 lakh. This gives more relief to taxpayers with modest gains from these assets.
Rationalization of Long-Term Capital Gains Tax Rate to 12.5% without Indexation
The new capital gains tax structure is simpler. It has a uniform long-term capital gains tax rate of 12.5% without indexation. This makes the tax system easier to understand and more predictable for investors.
These changes aim to balance tax revenue with investment and wealth creation. Taxpayers should look at their investment plans. They should also consider ways to reduce their tax burden under the new rules.
| Asset Type | Holding Period for Long-Term | Long-Term Capital Gains Tax Rate | Short-Term Capital Gains Tax Rate |
|---|---|---|---|
| Equity Shares, Equity Mutual Funds, Business Trust Units | More than 12 months | 12.5% without indexation | 20% |
| Debt Mutual Funds, Other Assets | More than 24 months | 12.5% without indexation | Applicable slab rate |
| Immovable Property (Land and/or Building) | More than 24 months | 20% with indexation or 12.5% without indexation | Applicable slab rate |
“The simplification of the capital gains tax structure is a welcome move, as it eliminates the complexity of the previous system.”
Impact on Real Estate Transactions
The Union Budget 2024-25 has big changes for real estate transactions. For properties bought before July 23, 2024, there’s grandfathering protection. This lets taxpayers pick between two ways to pay long-term capital gains tax.
They can choose to pay 12.5% without indexation or 20% with indexation. This choice helps the government get more tax money while also helping taxpayers. For properties bought after July 23, 2024, the tax rate is 12.5% without indexation.
These changes might affect the real estate market. Experts think they could change property prices and help homebuyers. The new tax rules might make buying and selling homes more appealing.
“The option to choose between different tax rates is expected to have a positive impact on the real estate market, making it more attractive for both sellers and buyers.”
But, some sellers might pay more tax now. For example, a property bought for Rs.25 lakh in 2003 and sold for Rs.1.5 crore could cost Rs.2.9 lakh more in tax. On the other hand, a property bought for Rs.75 lakh in 2018 and sold for Rs.1.5 crore would save Rs.9.37 lakh in tax.
Grandfathering Protection for Properties Acquired before July 23, 2024
The budget gives grandfathering protection to properties bought before July 23, 2024. This means taxpayers can pick to pay 12.5% long-term capital gains tax without indexation or 20% with indexation.
Taxpayer’s Option: 12.5% without Indexation or 20% with Indexation
Taxpayers have a choice for long-term capital gains tax on properties bought before July 23, 2024:
- Pay tax at 12.5% without indexation
- Pay tax at 20% with indexation
This choice lets taxpayers adjust their tax based on their situation and real estate investments.
Expert Analysis and Insights
Experts have given detailed analysis and insights on the new long-term capital gains tax rules in the Union Budget 2024-25. They’ve pointed out the main points of the simplified tax rates, the loss of indexation benefits, and the higher exemption limits for some financial assets.
According to experts, the new tax rules aim to make things simpler and encourage people to invest for the long term. The main changes are:
- Long-term capital gains from selling listed equity shares or units of equity-oriented mutual funds over Rs 1 lakh are taxed at 12.5% plus surcharge and cess, without indexation.
- For gains from selling securities other than equity shares or units of equity-oriented mutual funds, indexation is available. The gains are taxed at 20% plus surcharge and cess.
- Non-residents face a 10% tax on long-term capital gains from unlisted shares, without indexation.
- Long-term capital gains from selling listed equity shares and units of equity-oriented mutual funds are not taxed up to Rs 1 lakh.
Experts have looked into how these changes affect investment choices and tax planning. They say the loss of indexation benefits for some assets might make investors think twice about their investments, especially in real estate and alternative investments. On the other hand, the higher exemption limit for equity-linked assets could encourage people to invest in equities for the long term.
Overall, the expert analysis offers valuable views on the government’s goals, the pros and cons of the new capital gains tax regime, and how taxpayers can reduce their tax burden with these changes.
| Asset | Previous Tax Rate | New Tax Rate |
|---|---|---|
| Listed Equity Shares/Equity Mutual Funds (Gains exceeding Rs 1 lakh) | 10% plus surcharge and cess | 12.5% plus surcharge and cess |
| Other Securities (With Indexation) | 20% plus surcharge and cess | 20% plus surcharge and cess |
| Unlisted Shares (Non-Resident) | 20% plus surcharge and cess | 10% plus surcharge and cess |
The Nifty benchmark was at 25,059.85, up 18.75 points, showing the new capital gains tax regime’s effect on the stock market. The Canara Robeco Infrastructure Direct-Growth fund had a 5-year return of 32.72%. The Canara Robeco Flexi Cap Fund Direct-Growth had a 5-year return of 23.05%. These figures highlight the need for smart investment choices with these tax changes.
“The new capital gains tax regime aims to strike a balance between simplicity, fairness, and encouraging long-term investments. While the removal of indexation benefits may impact certain asset classes, the increased exemption limit for equity-linked assets could be a significant incentive for investors.”
Case Studies and Examples
The Union Budget 2024-25 has changed how we look at capital gains tax. It’s now key for investors and property owners to understand these changes. Let’s dive into some examples to see how the new long-term capital gains tax rules impact different investment scenarios.
Calculating LTCG Tax on Listed Equity Shares
The new tax regime taxes LTCG on listed equity shares at 12.5%. This applies to gains over ₹1.25 lakhs per year. For example, if you made ₹2 lakhs from selling shares, you’d pay ₹12,500 in tax (12.5% of ₹1 lakh).
Navigating LTCG on Real Estate Transactions
For those who bought property before July 23, 2024, there’s a choice. They can pick a 12.5% LTCG tax or the old 20% tax with indexation. This choice depends on the property’s growth and your financial situation.
| Scenario | Property Purchased Before July 23, 2024 | Property Purchased After July 23, 2024 |
|---|---|---|
| LTCG Tax Rate | 12.5% without indexation or 20% with indexation | 12.5% without indexation |
| Eligibility | Individuals and Hindu Undivided Families (HUFs) | All taxpayers |
By looking at the property’s purchase price, current value, and growth, you can pick the best LTCG tax option. This helps in reducing your tax bill.
Strategies to Minimize Long-Term Capital Gains Tax
- Use the increased exemption of ₹1.25 lakhs for LTCG on shares and units.
- Choose the 12.5% LTCG tax for properties bought before July 23, 2024, if they’ve grown more than inflation.
- Carry forward capital losses from shares to offset future gains.
- Keep up with tax changes and talk to financial experts to improve your investment and tax planning.
Understanding the new LTCG tax rules and using the right strategies can help taxpayers manage their tax better. This way, they can make the most of their investments while keeping taxes low.
“The changes in capital gains tax aim to simplify things and give taxpayers more ways to lower their LTCG tax.”
Conclusion
The Union Budget 2024-25 has made big changes to long-term capital gains tax in India. Now, all assets have a 12.5% tax rate without indexation, except for land and buildings bought before July 23, 2024. For these, taxpayers can choose between 12.5% without indexation or 20% with indexation.
The budget also raised the exemption limit for long-term capital gains on some financial assets. It changed the holding period rules too. These moves aim to make capital gains tax easier, help taxpayers, and boost investment.
These changes will affect many asset classes, especially real estate. The grandfathering protection and taxpayer options are key here. Experts have given detailed analysis and advice on how to deal with the new tax rules.
The budget’s changes are a big step towards a better capital gains tax system in India. It’s more streamlined and friendly to taxpayers.
For taxpayers, the main points are the long-term capital gains tax changes in the budget. They also need to know the impact of the new tax regime and how to reduce their taxes. These changes should make India a more attractive place for investment, encouraging more people and businesses to invest in different assets.
FAQ
Q: What are the changes in capital gains tax in budget 2024?
A: The Union Budget 2024-25 made big changes to capital gains tax. Now, long-term capital gains on most assets have a flat tax rate of 12.5%. This doesn’t include land and/or buildings bought before July 23, 2024.
Q: Is indexation removed in budget 2024?
A: Yes, the budget removed indexation for long-term capital gains. Now, all assets have a flat tax rate of 12.5%, except for land and/or buildings bought before July 23, 2024. For these, taxpayers can choose between 12.5% without indexation or 20% with indexation.
Q: What is the new tax regime for LTCG?
A: The Union Budget 2024-25 introduced a new LTCG tax regime. It has a flat rate of 12.5% without indexation for most assets. But, land and/or buildings bought before July 23, 2024, offer a choice between 12.5% without indexation or 20% with indexation.
Q: Will property prices fall after budget 2024?
A: The Union Budget 2024-25 might affect the real estate market. But, how much it will change property prices depends on many factors. Experts are studying how the new capital gains tax will impact real estate.
Q: Is there any relief for homebuyers?
A: Yes, the budget offers relief to homebuyers. It increased the exemption limit for long-term capital gains on equity shares, units, or Business Trust units. Now, taxpayers can get up to ₹1.25 lakh in relief per year.
Q: What is the difference between the new regime and old regime in long term capital gain tax?
A: The new regime has a flat rate of 12.5% without indexation for most assets. The old regime had different rates based on asset type. The new regime also raises the exemption limit for certain financial assets and changes holding period rules.
