Question: What are the proposed changes for Capital Gains Tax structure made vide the Budget 2024 announcements?

Response by CA (Dr.) Suresh Surana: The Union Budget 2024 proposes far-reaching changes regarding taxation of capital gains. The major changes are:

* Holding period for determination of long-term or short-term capital asset

It is proposed that there will only be two holding periods, 12 months and 24 months, for determining whether the capital gains is short-term capital gains or long term capital gains. For all listed securities (including units of listed business trust), the holding period is proposed to be 12 months and for all other assets, it shall be 24 months. The holding period for bonds, debentures, gold, etc. has been proposed to be reduced from 36 months to 24 months. For unlisted shares and immovable property it shall remain 24 months.

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* Rate for Tax on Short term capital gains and Long term capital gains

The rate for short-term capital gain under provisions of section 111A of the Act on STT paid equity shares, units of equity oriented mutual fund and unit of a business trust is proposed to be increased to 20% from the present rate of 15%. Other short-term capital gains shall continue to be taxed at applicable rate.

The rate of long-term capital gains under provisions of various sections is proposed to be kept at 12.5% in respect of all category of assets. This rate earlier was 10% for STT paid listed equity shares, units of equity-oriented fund and business trust under section 112A and for other assets it was 20% with indexation under section 112.

Tax exemption of gains up to Rs 100,000 has been proposed to be increased to Rs 125,000 in respect of long-term capital gains under section 112A on STT paid equity shares, units of equity oriented fund and business trust.

For listed bonds and debentures, the rate shall be reduced to 12.5% without indexation from earlier 20% without indexation. Unlisted debentures and unlisted bonds are of the nature of debt instruments and therefore any capital gains on them should be taxed at applicable rate, whether short-term or long-term.

Removal of Indexation benefit

With rationalisation of rate to 12.5%, indexation available under second proviso to section 48 is proposed to be removed for calculation of any long-term capital gains which is presently available for property, gold and other unlisted assets.

Parity of taxation amongst Residents and Non-Residents

There would be same taxation for resident and non-resident tax payers in respect of capital gains taxation.

These proposals are proposed to be given effect immediately i.e. with effect from the 23rd of July, 2024

Apart from the above, the provisions of section 50AA of the Income-tax Act, 1961 which provide for taxation of market linked debentures and specified mutual fund units as short-term capital gain without indexation have been now restricted to debt oriented mutual funds and market linked debentures.

While the above proposals would result in simplification, there are far reaching implications. These include higher tax rates for both long term capital gains and short term capital gains in case of STT paid listed equity shares and units of equity-oriented fund. In case of immovable property, unlisted shares, gold and bonds, while the tax rate for long term capital gain has been lowered from 20% to 12.5%, the benefit of indexation would no longer be available. In case of non-resident taxpayers, there is an increase in tax rate on long term capital gain from transfer of listed and unlisted shares. On the positive front, there is a reduction in the holding period from 36 months to 24 months in case of bonds, gold, etc.

Form 26AS or AIS: It is recommended that the taxpayer should maintain the necessary documents pertaining to the transactions such as bank statements, demat statements, etc.