Capital gains tax: Income Tax dept issues FAQs, explains rationale behind changes; details here

Union Budget 2024 rationalised the capital gains tax rate and holding period for various asset classes, including securities and immovable properties.

However, investors have many concerns. To address that, the tax authority has issued FAQs (frequently asked questions), saying that the idea behind changes in capital gains tax was to promote ease of compliance and simplify the tax structure.

The holding period for various assets for short and long-term capital gains tax has been rationalised.

The holding period of all listed assets will be one year for long-term capital gains tax (LTCG). The holding period of listed units of business trusts (InVITs, REITs) will be 12 months from 36 months.

Whereas, the holding period of unlisted securities (other than unlisted shares) and gold is also reduced from three years to two years for calculating LTGT. For immovable properties and unlisted shares, the holding period remains the same at 24 months.

"Simplification of any tax structure has benefits of ease of compliance viz computation, filing, maintenance of records. This also removes the differential rates for various classes of assets," the Income Tax department said in an FAQ.

Effective July 23, the short-term capital gains tax (STCG) on listed equity, equity-oriented mutual funds, and business trust units has increased to 20% from 15% earlier.

Similarly, the rate for these assets for the long term has increased from 10% to 12.5%. However, the exemption limit of ₹1 lakh for LTCG on these assets has been increased to ₹1.25 lakh.

There is no change in short-term capital gains tax (STCG) on other assets like gold, property, listed and unlisted bonds, and debentures, which will be taxed at slab rates.

The LTCG tax will be 12.5% for all asset classes except unlisted bonds and debentures, which will be taxed at a slab rate. However, there will be no indexation benefit for the real estate sector.

"The reduction in the rate will benefit all category of assets. In most of the cases, the taxpayers will benefit substantially. But where the gain is limited vis-a-vis inflation, the benefit will also be limited or absent in a few cases," the IT Department said.

On rationale behind the changes, the tax collection body said, "Simplification of any tax structure has benefits of ease of compliance viz computation, filing, maintenance of records. This also removes the differential rates for various classes of assets."