Long-term capital gain is the profit from selling an asset held for more than 36 months (reduced to 24 months for real estate after March 31, 2017).
Important Update
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Finance Minister Nirmala Sitharaman introduced amendments to the Finance Bill for 2024-25 on 6th August. The amendments will allow taxpayers to choose between the old scheme with indexation and a new scheme for calculating tax for those who acquire assets before July 23, 2024. Indexation benefit for LTCG on real estate available only to resident individuals. This benefit doesn’t apply to companies, LLPs, firms, or NRIs. It applies only to gains, which means losses cannot be offset or carried forward using this benefit. |
Let us understand first the type of assets.
Assets are of two types - financial and non-financial assets.
- Financial assets are stocks, shares, mutual funds, cash, debentures etc.
- Non-financial assets are real estate, machinery, gold, land and building.
Capital gain tax means that the government wants a share of profit you made while selling any of the assets mentioned.
Now, the main thing which trending is about proposed future changes for long-term capital gains.
What are the proposed changes made?
The proposed changes are:
- Long-term capital gains tax rate will be 12.5% for all assets.
- Section 112A has been increased from ₹1 lakh to ₹1.25 lakh.
- Listed bonds and debentures tax rate reduced from 20% to 12.5%.
- Unlisted bonds and debentures will be taxed at applicable rates, both short-term and long-term, under Section 50AA from July 23, 2024.
- Indexation for long-term gains on property, gold, and unlisted assets will be removed.
Issues
The issues will be when you sell assets such as Real estate, Gold etc.
For example
Let us assume that Aniket purchased an asset in May 2010 with an amount of Rs. 10,00,000.
He sold the same house on July 24 with an amount of Rs. 40,00,000.
Solution
LTCG with indexation if he would have sold before 23rd July 2024.
The indexed cost of acquisition = 10,00,000 * 363 / 167 = Rs. 21,73,653.
Capital Gain is Rs. 18,26,347
Tax on Long Term Capital Capital gain (18,26,347 @ 20%) = Rs. 3,65,269.
If sold after 23rd July 2024.
Purchase Amount: Rs. 10,00,000
Sale Amount: Rs. 40,00,000
Capital Gain is Rs. (40,00,000 - 10,00,000) = Rs. 30,00,000
Tax on Long Term Capital Capital gain (Rs. 30,00,000 @ 12.5%) = 3,75,000.
With the recent changes in tax rate on Long Term Capital Capital gain we can see that Aniket will have to pay 9,731 more tax than before.
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