India’s Capital Gains Tax for FY 2024-25: New Rules, Rates & Historic Changes Explained

Navigating capital gains tax in India can be complex, but recent legislative changes, particularly those effective from July 23, 2024, aim to simplify the landscape. The Union Budget 2024 and the subsequent Finance Act have introduced significant modifications, impacting how gains from various asset classes like equity shares, mutual funds, and real estate are taxed.

This exhaustive guide provides a clear breakdown of the capital gains tax rates, revised holding periods, implications of indexation removal, and transitional rules for the Financial Year 2024-25 (Assessment Year 2025-26). We’ll also cover the crucial change from April 1, 2023, affecting debt mutual funds and present a detailed historic timeline of capital gains tax evolution in India, making it an indispensable resource for investors and taxpayers.

Key Capital Gains Tax Changes Effective FY 2024-25 (Post July 23, 2024)

• A uniform Long-Term Capital Gains (LTCG) tax rate of 12.5% is introduced across nearly all asset classes for sales on or after July 23, 2024. This replaces the earlier varied LTCG rates (e.g., 10% for equity above ₹1 lakh, 20% with indexation for debt funds and property).
• Indexation benefits have been largely removed for most assets sold on or after July 23, 2024. A notable exception exists for certain residential properties bought before July 23, 2024, where resident individuals/HUFs can still opt for the older indexed rate (20% with indexation) or the new flat rate (12.5%).
• Short-Term Capital Gains (STCG) tax on listed equity shares and equity-oriented mutual funds increased from 15% to 20% for sales made on or after July 23, 2024.
• Holding periods have been standardized to improve clarity:
  • More than 12 months for equity assets (listed shares and equity-oriented mutual funds) to qualify as long-term.
  • More than 24 months for most other capital assets, including debt mutual funds (purchased before April 1, 2023), real estate, gold, and unlisted securities (other than unlisted shares). The earlier 36-month period for many of these assets has been reduced.
• For debt mutual funds purchased on or after April 1, 2023, all gains are treated as STCG and are taxed at the individual’s applicable income tax slab rates, regardless of the holding period. This means no LTCG benefits or indexation are available for these specific investments.

Capital Gains Tax Rates & Rules for FY 2024-25: Before and After July 23, 2024

Detailed Explanation of Capital Gains Taxation

1. Equity Shares & Equity Mutual Funds (Listed, STT Paid)

• Short-Term Capital Gains (STCG): Gains from assets held for 12 months or less.
  • Taxed at 15% for sales made till July 22, 2024.
  • Tax rate increased to 20% for sales on or after July 23, 2024.
• Long-Term Capital Gains (LTCG): Apply when held for more than 12 months.
  • Previously taxed at 10% on gains exceeding ₹1,00,000.
  • From July 23, 2024, taxed at 12.5% on gains exceeding ₹1,25,000.
  • No indexation benefit allowed for equity LTCG.

2. Debt Mutual Funds

• Units bought before April 1, 2023:
  • If sold before July 23, 2024 and held for more than 36 months, LTCG taxed at 20% with indexation.
  • If sold on or after July 23, 2024 and held for more than 24 months, LTCG taxed at 12.5% without indexation.
  • Gains from units held less than the prescribed periods are STCG and taxed at individual slab rates.
• Units bought on or after April 1, 2023:
  • All gains are treated as STCG and taxed at individual slab rates, irrespective of holding period.
  • No LTCG or indexation benefits are available for these units.

3. Real Estate (House Property / Land & Building)

• Short-Term Capital Gains: Apply if property held for 24 months (2 years) or less; taxed at your applicable income tax slab rates.
• Long-Term Capital Gains: Apply if held for more than 24 months.
  • Under old laws (property sold before July 23, 2024), LTCG taxed at 20% with indexation.
  • For properties sold on or after July 23, 2024:
    • If purchased on or before July 22, 2024, resident individuals/HUFs may choose between:
      • Old rate of 20% with indexation (potentially beneficial for properties held for very long periods with high inflation).
      • New rate of 12.5% flat without indexation.

      (NRIs pay 12.5% flat without indexation regardless in this scenario.)

    • For properties purchased on or after July 23, 2024, LTCG will be taxed at 12.5% flat without indexation for all taxpayers.

4. Gold, Unlisted Shares & Other Assets

• The holding period for LTCG classification for assets like physical gold, unlisted shares (other than unlisted equity shares), and other capital assets has been reduced from 36 months to 24 months for sales on or after July 23, 2024.
• For sales made before July 23, 2024, LTCG was taxed at 20% with indexation (if held >36 months).
• For sales made on or after July 23, 2024, LTCG on these assets will be taxed at a flat 12.5% without indexation (if held >24 months). STCG is taxed at slab rates.

Important Notes & Considerations for FY 2024-25

• The basic exemption limit for LTCG on equity shares and equity mutual funds has been raised from ₹1 lakh to ₹1.25 lakh for FY 2024-25 onwards.
• The increase in STCG tax on equity shares/funds to 20% (from 15%) for sales from July 23, 2024, is significant for short-term traders.
• While the removal of indexation simplifies calculation, it may lead to a higher effective tax burden for some long-held assets, especially if the asset appreciation is primarily due to inflation.
• The old and new tax regimes (under Section 115BAC) do not influence the fixed capital gains tax rates (e.g., 12.5% or 20%). However, for STCG taxed at slab rates, your choice of tax regime will affect your overall tax liability.
• Existing roll-over benefits and exemptions under various sections (e.g., Section 54, 54EC, 54F) generally remain unchanged, allowing taxpayers to save on capital gains tax by reinvesting profits in specified assets.

FAQ: Common Queries Around Capital Gains Tax FY 2024-25

Q1. Why was indexation removed for most assets after July 23, 2024?

A: The primary reasons are simplification and standardization. The government aims to create a more streamlined and transparent capital gains tax regime with a uniform LTCG rate across asset classes, reducing complexity in tax computation and administration.

Q2. How does the April 1, 2023 change affect debt mutual funds?

A: For debt funds purchased on or after April 1, 2023, the distinction between short-term and long-term capital gains has been eliminated. All gains from these specific units are now treated as short-term capital gains, taxable at your individual income tax slab rates, regardless of the holding period.

Q3. Can I choose between old and new LTCG rates for property sold after July 23, 2024?

A: Yes, if the property was purchased on or before July 22, 2024, resident individuals and Hindu Undivided Families (HUFs) have the beneficial option to choose between the old rate of 20% with indexation or the new flat rate of 12.5% without indexation. You should calculate both to determine which results in lower tax. For NRIs, the 12.5% flat rate without indexation applies in this scenario.

Q4. Does capital gains tax differ between the old and new income tax regimes?

A: No, the fixed capital gains tax rates (e.g., 12.5% for LTCG on most assets, 20% for STCG on listed equities) are uniform and apply irrespective of whether you opt for the old or new income tax regime. The difference between regimes only impacts STCG that is taxed at your regular income tax slab rates, as the slab structures vary.

Q5. Will the new rules impact investments made before July 23, 2024, but sold after?

A: Yes, the sale date is crucial. If an asset (excluding debt funds bought on/after April 1, 2023) is sold on or after July 23, 2024, the new rates and rules generally apply, even if the asset was purchased much earlier. The property rule mentioned above is a specific exception where a choice is provided for residents.

Historic Changes in Capital Gains Taxability in India: A Timeline

Conclusion

The Financial Year 2024-25 marks a transformative period for capital gains taxation in India. The introduction of a uniform LTCG tax rate, the widespread removal of indexation benefits, and the increased STCG rates on equity reflect a strong push towards simplification and standardization. Critical dates like April 1, 2023, and especially July 23, 2024, are pivotal for determining the applicable tax rules and rates.

For investors in equity, mutual funds, or property, understanding these nuanced changes is crucial for effective tax planning and optimizing your investment decisions. Always consider your specific asset acquisition dates and holding periods when calculating potential tax liabilities.

Disclaimer: The information provided is for general informational purposes only and does not constitute professional tax advice. For personalized guidance tailored to your specific financial situation, it is strongly recommended to consult a qualified tax advisor or financial planner.