FREQUENTLY ASKED QUESTIONS (FAQs)
What are the major changes brought about in the taxation of capital gains by the Finance (No.2) Bill, 2024?
The taxation of capital gains has been rationalized and simplified across five broad parameters:
- Simplified Holding Periods: Only two holding periods now exist: 1 year and 2 years.
- Uniform Rates: Rates have been standardized for the majority of assets.
- No Indexation: Indexation has been removed, with the rate reduced from 20% to 12.5% for simplicity.
- Resident and Non-resident Parity: Equal treatment for residents and non-residents.
- Unchanged Roll Over Benefits: No changes to existing roll over benefits.
What is the date when the new taxation provisions come into force?
The new provisions for taxation of capital gains come into force from 23.7.2024 and apply to any transfers made on or after this date.
How has the holding period been simplified?
Previously, three holding periods defined long-term capital assets. Now, there are only two:
- Listed Securities: 1 year
- All Other Assets: 2 years
Who will benefit from the change in holding period?
The holding period for listed assets, including units of business trusts (ReITs, InVITs), has been reduced from 36 months to 12 months. The holding period for gold and unlisted securities (other than unlisted shares) has been reduced from 36 months to 24 months.
What about the holding period of immovable property and unlisted shares?
The holding period for immovable property and unlisted shares remains unchanged at 24 months.
Please elaborate on the change in the rate structure for STT-paid capital assets.
- Short-Term (Section 111A): Rate increased from 15% to 20% for listed equity, equity-oriented mutual funds, and units of business trusts.
- Long-Term (Section 112A): Rate increased from 10% to 12.5%.
Is there any change in the exemption limit for long-term capital gains under section 112A which was earlier ₹1 lakh?
Yes, the exemption limit has increased from ₹1 lakh to ₹1.25 lakh, applicable for FY 2024-25 and subsequent years.
Please elaborate on the change in the rate structure for other long-term capital gains.
The rate for other long-term capital gains on all assets has been reduced to 12.5% without indexation (Section 112), from the previous rate of 20% with indexation, simplifying tax computation.
Who will benefit from the change in the rate from 20% (with indexation) to 12.5% (without indexation)?
Most taxpayers will benefit significantly from the reduced rate. However, where the gains are limited compared to inflation, the benefit may be minimal or absent.
Can taxpayers continue to avail the roll over benefits on capital gains?
Yes, the roll over benefits remain unchanged. Taxpayers can continue to avail these benefits under existing conditions.
In which assets can the long-term capital gains be invested for roll over benefits?
Taxpayers can invest their gains in:
- Houses under Section 54 or Section 54F
- Certain bonds under Section 54EC For more details, refer to Sections 54, 54B, 54D, 54EC, 54F, and 54G of the IT Act.
What is the amount up to which roll over benefit is available?
Roll over benefit is available for:
- Investments in 54EC bonds up to ₹50 lakh
- Other cases where the capital gain is exempt from tax, subject to specified conditions.
What is the overall rationale for these changes?
The rationale is to simplify the tax structure, ease compliance (computation, filing, record maintenance), and remove differential rates for various asset classes.
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