Understanding Capital Gains Tax on Property and Investments: Budget 2024 Update
Investing in property is one of the most popular forms of investment, primarily due to the tangible asset it provides.
However, many investors also aim to earn profits through the future sale of the property. For income tax purposes, house property is classified as a capital asset, and any gains or losses from its sale fall under the 'Capital Gains' tax head. Let's delve into the nuances of capital gains tax, recent amendments introduced in Budget 2024, and the implications for various capital assets, including property, stocks, mutual funds, and more.
What are Capital Gains
Capital gains refer to the profit or loss that arises from the sale of a capital asset. This is a crucial concept for investors as it directly affects their tax liabilities.
For instance, gains from the sale of a house property are taxable in the year the transfer occurs. Similarly, capital gains from other assets such as stocks, mutual funds, and bonds are also subject to tax. Understanding these tax implications is vital for effective financial planning and investment strategies.
A capital asset can include various investments such as real estate, stocks, mutual funds, and bonds. When these assets are sold, any profit or loss is categorized under 'Capital Gains' for tax purposes.
Budget 2024: Key Amendments
Budget 2024 has introduced significant changes to the classification and taxation of capital assets, effective from FY 24-25:
Image: Union Budget 2024
Image courtesy: Business Today
1.Simplified Holding Periods
Assets will now be classified based on two holding periods: 12 months and 24 months.
The previous 36-month holding period has been eliminated.
2.Revised Holding Periods for Listed Securities
The holding period for all listed securities is now 12 months. Securities held for more than 12 months are considered Long-Term.
3.Increased Tax on Short-Term Capital Gains
The tax rate on short-term capital gains for listed equity shares, equity-oriented fund units, and business trust units has been increased to 20% from 15%.
Other short-term financial and non-financial assets will continue to be taxed at slab rates.
4.Higher Exemption Limit for Long-Term Gains
The exemption limit for long-term capital gains on equity shares, equity-oriented units, or business trust units has been raised from Rs. 1 lakh to Rs. 1.25 lakh per year.
The tax rate on these gains has increased from 10% to 12.5%.
5.Reduced Tax on Long-Term Gains for Other Assets
The tax rate on long-term capital gains from other financial and non-financial assets has been reduced from 20% to 12.5%.
The indexation benefit for long-term assets sold after July 23, 2024, has been removed.
Calculating Capital Gains
Image: STCG, LTCG
Image courtesy: Navi
Short-Term Capital Gains (STCG):
1.Full Value Consideration
The amount received from the transfer of the capital asset.
2.Deductions
Expenditure incurred wholly and exclusively in connection with the transfer.
Cost of acquisition.
Cost of improvement.
3.Resulting Amount
Deduct exemptions under sections 54B/54D from the resulting amount to determine the short-term capital gain, which is then subject to tax.