Budget 2024 introduces notable changes to the capital gains tax framework in India, affecting how assets are classified and taxed effective from FY 2024-25.
1. Asset Classification
As per Indian tax laws, assets are classified in two types — Long-Term Capital Assets and Short-Term Capital Assets — depending upon the period of holding of such assets.
Post Budget 2024:
- Assets will now be categorized with only two holding periods: 12 months and 24 months. The previous 36-month holding period has been removed.
- For listed securities, a holding period exceeding 12 months will classify them as Long-Term.
- For other assets, a holding period exceeding 24 months will classify them as Long-Term.
Note: Debt funds (for example — debt-oriented mutual funds) purchased after 1st April 2023 will always be classified as short-term capital assets irrespective of the period of holding.
2. Taxation of Short-Term Capital Gains (STCG)
- The tax rate for STCG on listed equity shares, units of equity-oriented funds, and units of business trusts will increase from 15% to 20%.
- STCG on other assets will continue to be taxed at the applicable slab rates.
3. Taxation of Long-Term Capital Gains (LTCG)
- In case of equity shares, equity-oriented units, or units of business trusts, the tax rate will rise from 10% to 12.5% and the exemption will rise from ₹1 lakh to ₹1.25 lakh.
- The enhanced exemption limit of ₹1.25 lakh applies for the entire year, whereas the increased tax rate of 12.5% will take effect from July 23, 2024.
- The tax rate for LTCG on other assets will decrease from 20% to 12.5% effective July 23, 2024.
- The indexation benefit previously available on long-term assets has been removed.
- However, taxpayers can choose to calculate taxes on sale of properties or unlisted equity shares (purchased before July 23, 2024), either at 12.5% without indexation or at 20% with indexation.
4. Calculation of Capital Gain on Sale of Long-Term Capital Assets
*Indexed Cost = Original Cost × CII of the year in which asset is sold ÷ CII of the year in which the asset was acquired (or CII of FY 2001-02 if acquired before 1st April 2001).
For accurate calculations, professional accounting help is recommended.
Here, CII means Cost Inflation Index. In case an asset is acquired before 1st April 2001, the cost of acquisition would be the actual cost or Fair Market Value as on 1st April 2001, at the option of the seller.
