Capital Gains Tax FAQs: CBDT answers questions on changes in capital gains tax, will this be able to control damage?

CBDT on LTCG New Regime:The Central Board of Direct Taxes (CBDT) has given its clarification on the changes made in the tax provisions related to capital gains. For this, the board has tried to answer many such questions, which are arising in the minds of common people since the budget. There is a lot of opposition to the abolition of indexation benefit on property by changing the rules related to long term capital gains (LTCG) tax. This is the reason why most of the answers in the FAQs issued by CBDT are given on this issue. Along with this, it has also put its stand on the decision to increase the rate of short term capital gains tax from 15 percent to 20 percent. The Income Tax Department has also released calculations in a social media post and claimed that the new rules of LTCG are beneficial in most cases.

Frequently asked questions and answers on capital gains

The Central Board of Direct Taxes (CBDT) has answered a total of 13 questions in its FAQs, which you can check out here:

Question 1. What major changes have been made in the taxation of capital gains through the budget?

CBDT’s response:Taxation of capital gains has been simplified and rationalised. For this, 5 parameters have been adopted:

1. The holding period has been simplified. There are now only two holding periods: 1 year and 2 years.

2. Rates have been rationalised and made uniform for most assets.

3. Indexation has been eliminated for ease of calculation.

4. Along with this, the rate of LTCG tax has been reduced from 20% to 12.5%.

5. The distinction between resident and non-resident Indians has been abolished.

There is no change in the rollover benefits.

Question 2. When will the new taxation rules be implemented?

CBDT’s response:The new provisions for taxation of capital gains have been implemented from July 23, 2024 and will apply to any transfer made on or after July 23, 2024.

Also read: New Income Tax Slabs: Big change in income tax slab, check the new rates of new tax regime, how much tax will be levied on how much income now

Question 3. How has the holding period been simplified?

CBDT’s response:Earlier there were three holding periods for an asset to be considered a long-term capital asset. Now the holding period has been simplified and there are only two holding periods – one year for listed securities and two years for all other assets.

Question 4. Who will benefit from the change in holding period?

CBDT’s response: The holding period for all listed assets will now be one year. Hence, the holding period for listed entities of business trusts (ReITs, InVITs) has also been reduced from 36 months to 12 months. The holding period for other assets like gold and unlisted securities (other than unlisted shares) has also been reduced from 36 months to 24 months.

Question 5. What is the provision regarding the holding period of real estate and non-listed shares?

CBDT’s response:The holding period for immovable property and unlisted shares will remain the same as before i.e. 24 months.

Question 6. What is the change in the tax rate structure for STT paid capital assets?

CBDT’s response:The tax rate on short-term gains from STT-paying listed equity, equity-oriented mutual funds and units of business trusts (Section 111A) has been increased from 15% to 20%. Similarly, the tax rate for long-term gains (Section 112A) has been increased from 10% to 12.5%.

Question 7. Is there any change in the tax exemption limit for long-term capital gains under section 112A which was earlier Rs 1 lakh?

CBDT’s response: Yes. The tax exemption limit of Rs 1 lakh for LTCG on these properties has been increased to Rs 1.25 lakh. This increased limit will be applicable for the financial year 2024-25 and subsequent years.

Question 8. What are the new rates of long term capital gains tax applicable on other assets?

CBDT’s response:The rate of long term capital gains tax on all assets has been reduced to 12.5% ​​(Section 112) without indexation. This rate was earlier 20% with indexation. This will simplify the taxation of capital gains and ease their calculation.

Question 9. Who will benefit from reduction of LTCG tax rate from 20% (with indexation) to 12.5% ​​​​(without indexation)?

CBDT’s response: The reduction in rates will benefit every category of assets. In most cases, taxpayers will benefit significantly. But in some cases where the gain is less than inflation, the benefit will be less or not at all.

Question 10. Will taxpayers continue to get the benefit of rollover on capital gains?

CBDT’s response:Yes. The rollover benefit will continue to be available as before. There is no change in the rollover benefits already available under the Income Tax Act. Therefore, taxpayers who wish to save on LTCG tax even at lower rates can continue to avail the rollover benefit subject to fulfilling the applicable conditions.

Question 11. In which assets can long term capital gains be invested for rollover benefits?

CBDT’s response:To avail the rollover benefit, taxpayers can invest their profits in house property under section 54 or section 54F or in certain bonds under section 54EC. For complete details of all rollover benefits, you can refer to sections 54, 54B, 54D, 54EC 54F, 54G of the Income Tax Act.

Also read: Tax-free investment limit for private employees in NPS will increase, will get benefit in new tax regime

Question 12. Up to what amount is the rollover benefit available?

CBDT’s response: If the capital gain amount is invested in 54EC bonds (up to Rs 50 lakh), or in some other cases, the capital gain is exempt from tax under certain conditions.

Question 13. What is the biggest argument in favor of all these changes?