Taxation of Capital Gains: Salient Features
1. Holding period simplified: There are 2 holding periods -
- Listed securities - 1 year
- All other assets - 2 years
2. Short term rate for STT paid listed equity, Equity oriented mutual fund & units of business trust changed from 15% to 20% & long-term rate changed from 10% to 12.5%
- Exemption limit for LTCG on the assets increased from Rs 1 lakh to Rs 1.25 lakh
3. Rate for other long-term capital gains on all assets rationalized to 12.5% without indexation, down from 20% (with indexation), simplifying the taxation of capital gains
4. No change in rollover benefits already available under the IT Act. Taxpayers who want to save on LTCG tax even with low rates, can continue to avail the rollover benefits on fulfillment of conditions as applicable
5. Reduction in the rate to benefit all category of assets based on the extent of appreciation of asset during the holding period.
Benefits to the Taxpayers
1. The reduction in long term capital gains tax rate from 20% with indexation to 12.5 % without indexation for real estate to benefit in almost all cases
2. Real estate returns (12-16% per annum) are much higher than indexation of inflation (4-5%), depending on the period of holding. Therefore, substantial tax savings are expected for a vast majority of taxpayers.
3. On investment of capital gain in 54EC bonds (upto Rs 50 lakh), purchase or construction of house (upto Rs 10 crore), the capital gain is exempt from tax, subject to certain specified conditions.
Change in holding period for LTCG
- For Business Trust units (ReITs, InVITs) holding period reduced from 36 months to 12 months.
- Holding period of gold, unlisted securities (other than unlisted shares) also reduced from 36 months to 24 months.
- Holding period of unlisted shares & property remains the same as earlier i.e., 24 months.
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