Context: The Government in the Budget of 2024-25 has announced an increase in capital gains tax for both short-term and long-term transactions.
What are Capital Assets?
- Land, building, house property, vehicles, patents, trademarks, leasehold rights, machinery, and jewellery are a few examples of capital assets.
- The following do not come under the category of ‘capital asset’:
- Any stock, consumables or raw material, held for the purpose of business or profession.
- Personal goods such as clothes and furniture held for personal use
- Agricultural land in rural India
- 6.5% gold bonds (1977) or 7% gold bonds (1980) or National Defence gold bonds (1980) issued by the central government
- Special bearer bonds (1991)
- Gold deposit bonds issued under the gold deposit scheme (1999) or deposit certificates issued under the Gold Monetisation Scheme, 2015 and Gold Monetisation Scheme, 2019 notified by the Central Government.
What is Capital Gains Tax in India?
- Any profit or gain that arises from the sale of a ‘capital asset’ is known as ‘income from capital gains’. Such capital gains are taxable in the year in which the transfer of the capital asset takes place. This is called capital gains tax.
- There are two types of Capital Gains: short-term capital gains (STCG) and long-term capital gains (LTCG).
Changes Made in the Budget 2024-25
- The limit on the exemption of LTCG on certain asset classes (transfer of equity shares or equity-oriented units or units of Business Trust) has increased from Rs.1 Lakh to Rs.1.25 lakh per year.
- For classifying assets into long-term and short-term, there will only be two holding periods: 12 months and 24 months.
- The holding period for all listed securities is 12 months. All listed securities with a holding period exceeding 12 months are considered Long-Term. The holding period for all other assets is 24 months.
- The taxation of Short-Term Capital Gain (STCG) for listed equity shares, a unit of an equity-oriented fund, and a unit of a business trust has been increased from 15% to 20%.
- The tax on long-term capital gains (LTCG) on other financial and non-financial assets is reduced from 20% to 12.5%. While on the other hand, the indexation benefit that was previously available on sale of long-term assets, has now been done away with.