Union Budget 2024-25: Key FAQs on New Capital Gains Tax Regime Issued by CBDT
By: Admin
July 25, 2024
Categories: Income Tax|Press Release
Important FAQs on New Capital Gains Tax Regime in Union Budget 2024-25
The Central Board of Direct Taxes (CBDT) recently issued FAQs regarding the new capital gains tax regime introduced in the Union Budget 2024-25. These changes aim to simplify and rationalize the taxation of capital gains across various asset classes. Below are the key FAQs and their implications:
Q1. Major Changes in Capital Gains Taxation
The Finance (No.2) Bill, 2024, has brought significant changes to the taxation of capital gains. The changes can be summarized under five broad parameters:
- Simplified Holding Periods: The number of holding periods for determining long-term capital assets has been reduced to two – one year for listed securities and two years for all other assets.
- Rationalized Tax Rates: Tax rates have been standardized and reduced. Notably, the tax rate for long-term capital gains has been reduced from 20% to 12.5% across most asset categories.
- Removal of Indexation: Indexation benefits have been removed to simplify computation, coupled with a reduction in the tax rate.
- Parity Between Residents and Non-residents: The new regime aims to provide uniformity in tax treatment between residents and non-residents.
- Continued Roll Over Benefits: There are no changes in the roll over benefits available under the Income Tax Act, which allow taxpayers to defer capital gains tax by reinvesting in specified assets.
Q2. Effective Date of the New Provisions
The new provisions for capital gains tax came into effect from July 23, 2024. They are applicable to all transfers made on or after this date.
Q3. Simplification of Holding Period
Previously, there were multiple holding periods to qualify an asset as a long-term capital asset. Under the new regime, this has been simplified to just two periods: one year for listed securities and two years for other assets.
Q4. Benefits of the Change in Holding Period
The reduction in holding periods benefits holders of listed assets, including units of business trusts (such as REITs and InvITs), whose holding period has been reduced from 36 months to 12 months. Similarly, the holding period for gold and certain unlisted securities has been reduced from 36 months to 24 months.
Q5. Holding Period for Immovable Property and Unlisted Shares
The holding period for immovable property and certain unlisted shares remains unchanged at 24 months.
Q6. Changes in Tax Rates for STT Paid Capital Assets
The tax rate for short-term capital gains on STT (Securities Transaction Tax) paid listed equity, equity-oriented mutual funds, and units of business trusts has increased from 15% to 20%. For long-term gains on these assets, the rate has been adjusted from 10% to 12.5%.
Q7. Exemption Limit for Long-Term Capital Gains
The exemption limit for long-term capital gains under section 112A has been increased from Rs. 1 lakh to Rs. 1.25 lakh for FY 2024-25 and subsequent years.
Q8. Changes in Tax Rates for Other Long-Term Capital Gains
The tax rate for other long-term capital gains across all asset categories has been standardized at 12.5%, without the benefit of indexation. Previously, this rate stood at 20% with indexation.
Q9. Beneficiaries of Reduced Tax Rates
The reduction in the tax rate from 20% (with indexation) to 12.5% (without indexation) benefits taxpayers across all asset classes. However, the extent of benefit may vary depending on the inflation-adjusted gain.
Q10. Continuation of Roll Over Benefits
Taxpayers can continue to avail roll over benefits as per existing provisions under the Income Tax Act. These benefits allow taxpayers to defer capital gains tax by reinvesting in specified assets, subject to certain conditions.
Q11. Eligible Assets for Roll Over Benefits
Assets eligible for roll over benefits include investment in a new house under sections 54 or 54F, or in specified bonds under section 54EC. Detailed provisions can be found in sections 54, 54B, 54D, 54EC, 54F, and 54G of the Income Tax Act.
Q12. Limit for Roll Over Benefits
Investment of capital gains in 54EC bonds up to Rs. 50 lakh qualifies for roll over benefits. Other investments are exempt from tax under specified conditions.
Q13. Rationale Behind the Changes
The overhaul of the capital gains tax structure aims to simplify compliance, reduce differential tax rates across asset classes, and facilitate easier computation and filing of taxes.
