The Finance Act 2024 (following the Union Budget presented on 23 July 2024) introduced the most significant changes to capital gains taxation in India in recent years. New rates for short-term and long-term capital gains, removal of indexation benefit for property, and revised holding period definitions have changed the tax planning landscape for investors and property owners. Here is a comprehensive update.
What Changed: Quick Summary
| Asset Class | Before 23 Jul 2024 | After 23 Jul 2024 |
|---|---|---|
| Listed equity shares / equity MFs (LTCG) | 10% (above ₹1L) | 12.5% (above ₹1.25L) |
| Listed equity shares / equity MFs (STCG) | 15% | 20% |
| Unlisted shares (LTCG) | 20% with indexation | 12.5% without indexation |
| Immovable property (LTCG) | 20% with indexation | 12.5% without indexation |
| Debt mutual funds | Slab rates (since 2023) | Slab rates (unchanged) |
| Gold / physical assets (LTCG) | 20% with indexation | 12.5% without indexation |
Long-Term vs Short-Term: Holding Period
The holding period for classification as Long-Term Capital Asset:
- Listed equity shares, equity-oriented MFs, units of business trust: More than 12 months (unchanged).
- Immovable property, unlisted shares, other assets: More than 24 months (reduced from 36 months for immovable property).
- Bonds, debentures, government securities: More than 12 months.
Impact on Property Sellers
The removal of indexation for property sold after 23 July 2024 has significantly affected long-term property holders:
- A property purchased in 2010 for ₹30 lakhs and sold today for ₹90 lakhs: Under old regime (20% with indexation), effective tax may have been modest given high indexation. Under new regime (12.5% without indexation), LTCG = ₹60 lakhs, tax = ₹7.5 lakhs.
- Budget 2025 relief: For property acquired before 23 July 2024, taxpayers can opt for whichever is lower — old rate (20% with indexation) or new rate (12.5% without indexation).
- Section 54 and 54F exemptions (reinvestment in residential property) remain available.
Key Exemptions and Planning Opportunities
- Section 54: Long-term capital gains on residential property can be exempted by reinvesting in another residential property within 2 years (purchase) or 3 years (construction). Cap: ₹10 crores.
- Section 54F: LTCG on any long-term asset (other than residential property) can be exempted by reinvesting net sale consideration in residential property. Cap: ₹10 crores.
- Section 54EC: LTCG on immovable property can be exempted by investing in specified bonds (NHAI, REC) within 6 months. Cap: ₹50 lakhs.
- LTCG exemption limit on equity: ₹1.25 lakhs per year — plan equity redemptions to stay within the annual exemption where possible.