Finance Minister Nirmala Sitharaman said in her budget speech yesterday that the capital gain tax (CGT) will be increased. Capital gains are separated into short term and long term based on the holding period. Although the Ministry of Finance has clarified this matter, there are still many doubts among the investors. To address this, the Central Board of Direct Taxes has issued FAQs containing the queries investors may have and their answers.
- What changes in the tax on capital investment gains were introduced in the budget?
The capital gains tax structure has been made more efficient and simpler. Various criteria are used for this.
*Provisions regarding holding period have been simplified. Now there are two terms, one year and two years.
*Tax leviable for most capitals has been consolidated
*Resident and non-resident categories have been consolidated
*No change in roll over benefits - When will the new tax rules come into effect?
The new tax rules came into effect from July 23, 2024, when the budget was presented. The new rule will apply to all transactions made after this date. - What is the holding period?
There were three types of holding period for capital to be treated as a long-term capital asset. This has been changed. It was changed to one year for listed shares and two years for other capitals. - Who benefits from the change in tenure?
The short term limit for listed shares is one year. The holding period for unlisted securities and gold has been reduced from 36 months to 24 months. - What is the holding period for immovable property and unlisted shares?
The holding period for immovables and unlisted shares will continue to be two years as before. - What is the change in security transaction tax (STT)?
Short term share transfer tax (STT) for listed equity, equity oriented mutual fund and unit of business trust has been increased from 15% to 20%. Similarly, the long term stock transfer tax (STT) on these assets has been increased from 10 per cent to 12.5 per cent.
Also Read – Rs 1.4 crore watch bought to give as a gift, watches worth up to Rs 2 crore now available in Kochi - Under section 112A of the Income Tax Act, income up to Rs 1 lakh was exempted from long term capital gains tax. Does this change?
Exemption of income up to Rs 1 lakh from long-term capital gains tax has been revised. Now there is no tax on income up to Rs 1.25 lakh. This change will be effective from the current financial year. - What is the change in long term capital gains tax?
Long term capital gain on all income consolidated at 12.5 per cent (without indexation) . Earlier it was 20 percent (upon indexation). The new decision will help in accounting for capital gains and simplify the tax structure. - Who will benefit from the above (Question No. 8)?
All categories of income will get this benefit. In almost all cases the taxpayer will benefit. But this is likely to change slightly if inflation is taken into account. - Will the roll over benefit to the taxpayer from capital gains continue?
Of course. The roll over benefit will remain as before. There are no other charges for roll over benefit as per the Income Tax Act. This facility can continue as before.
11.What to do to get roll over benefit?
To avail this facility taxpayers can invest the profit received as capital gain in housing schemes as per Section 54 and Section 54F of the Income Tax Act and in certain bonds using Section 54EC. To know more about roll over benefit refer Section 54, 54B, 54D, 54EC, 54F and 54G of the Income Tax Act. - Roll over benefit up to Rs.
50 lakh in 54EC Bonds (Capital Gain Bond) and in other cases, capital gains are exempted from tax subject to certain specified conditions. - What is the main benefit of the new regulations?
Simplifying the tax structure is always good. This will make things like computation, filing and record keeping easier. It will also eliminate differential rates of various types of income.
Profits on sale of equities held for less than one year are also recognized as short-term capital gains (STCG). Profit from sale of equities beyond one year is also treated as Long Term Capital Gain (LTCG).
