Changes in Capital Gain Taxation by Finance (No.2) Bill, 2024
Q1. What are the major changes brought about in the taxation of capital gains by the Finance (No.2) Bill, 2024?
A1. The Finance (No.2) Bill, 2024, introduces significant rationalisation and simplification in capital gains taxation. The changes are outlined as follows:
(i) Simplified Holding Periods: There are now only two holding periods: 1 year and 2 years.
(ii) Rationalised Rates: Uniform rates for the majority of assets have been introduced.
(iii) Indexation Removal: Indexation has been eliminated for ease of computation, with the tax rate reduced from 20% to 12.5%.
(iv) Resident and Non-resident Parity: Taxation parity between residents and non-residents has been established.
(v) Unchanged Rollover Benefits: Rollover benefits remain the same.
(vi) Implementation Date for New Tax Provisions
Q2. When do the new taxation provisions come into force?
A2. The new capital gains taxation provisions take effect from July 23, 2024, and apply to any transfers made on or after this date.
Q3. How has the holding period been simplified?
A3. The holding periods have been streamlined. Now, the holding period for listed securities is one year, and for all other assets, it is two years.
Q4. Who benefits from the change in holding period?
A4. The holding period for listed units of business trusts (ReITs, InVITs) has been reduced from 36 months to 12 months. Additionally, the holding period for gold and unlisted securities (excluding unlisted shares) has been shortened from 36 months to 24 months.
Q5. What about the holding period for immovable property and unlisted shares?
A5. The holding period for immovable property and unlisted shares remains unchanged at 24 months.
Q6. Can you elaborate on the change in the rate structure for STT-paid capital assets?
A6. The short-term capital gains tax rate for STT-paid listed equity, equity-oriented mutual funds, and units of business trusts has increased from 15% to 20% (Section 111A). For long-term capital gains (Section 112A), the rate has increased from 10% to 12.5%.
Q7. Is there any change in the exemption limit for long-term capital gains under Section 112A?
A7. Yes, the exemption limit for long-term capital gains under Section 112A has been raised from ₹1 lakh to ₹1.25 lakh for FY 2024-25 and subsequent years.
Q8. Can you elaborate on the change in the rate structure for other long-term capital gains?
A8. The tax rate for other long-term capital gains on all assets has been rationalised to 12.5% without indexation (Section 112). Previously, this rate was 20% with indexation, simplifying the taxation process and computation.
Q9. Who benefits from the rate change from 20% (with indexation) to 12.5% (without indexation)?
A9. The reduction benefits most taxpayers across various asset categories. However, in cases where gains are limited compared to inflation, the benefit might be minimal or absent.
Q10. Can taxpayers continue to avail the rollover benefits on capital gains?
A10. Yes, rollover benefits remain unchanged. Taxpayers can still avail these benefits upon fulfilling the applicable conditions.
Q11. In which assets can long-term capital gains be invested for rollover benefits?
A11. Taxpayers can invest their gains in residential property under Sections 54 or 54F, or in certain bonds under Section 54EC. Refer to Sections 54, 54B, 54D, 54EC, 54F, and 54G of the IT Act for complete details on rollover benefits.
Q12. What is the maximum amount for which rollover benefit is available?
A12. Investment in 54EC bonds is capped at ₹50 lakh. In other cases, the capital gain is exempt from tax, subject to specified conditions.
Q13. What is the overall rationale for these changes?
A13. Simplifying the tax structure facilitates easier compliance, including computation, filing, and record maintenance. It also eliminates differential rates for various asset classes, streamlining the taxation process.
To Access the related press release CLICK HERE
Also Read: Union Budget 2024: Key Announcements on Direct Taxes
Read More
Exempted Allowances under Section 10(14)(i) of the Income Tax Act
Discard ITR Option Available from AY 2023-24: Discard the Wrong ITR and Refile Afresh