IGI Logo

Below the Budget on Capital Gains Tax Rejig and Market Implications by Manoj Purohit, Partner & Leader, Financial Services Tax, Tax & Regulatory Services, BDO India

"With the aim of rationalising the capital gains tax regime, the period of holding and tax rates have been rejigged in the Budget proposals. Firstly, the current long-term capital gains tax exemption of INR 1 lac is increased to INR 1.25 lacs.  

The period of holding for listed financial assets is proposed to be fixed at one year and others (unlisted financial assets and all non-financial assets) to two years to be qualified as a ‘long-term capital asset’, respectively. Long-term capital gains across the listed and unlisted space are proposed to be taxed at a uniform rate of 12.5% which will bring in uniformity for differential tax rates of the current tax of 10 % and 20% under this space. However, indexation benefit for long-term capital assets is proposed to be removed.

In the case of units of listed business trusts, it will now be at par with listed equity shares at 12 months instead of the earlier 36 months. For unlisted financial assets such as bonds, debentures, gold will reduce from 36 months to 24 months. The period of holding is kept unchanged at two years in respect of unlisted shares and immovable property. The changes w.r.t capital gains are proposed to be made effective from 23 July 2024.

The harmonisation of the period of holding for capital assets will bring much-needed clarity and simplification in computing the tax aligned with common tax rates for financial assets.

Bringing unlisted debentures and unlisted bonds under the ambit of section 50AA of the Act will increase the tax burden for the investors as the proposed tax would be on applicable rates.

The market participants would now have to shell out more tax. Also, with the increase of STT rates on Futures and Options, the cost of trading will also increase. Non-residents especially the FPI community taking treaty benefits on capital gains will be immune to the additional tax burden."
 

Above views are of the author and not of the website kindly read disclaimer