Drastic reduction in capital gains tax rate to benefit most taxpayers: I-T dept

New Delhi: The Income Tax department on Tuesday said the “drastic reduction” in long-term capital gains (LTCG) tax rate on all assets will substantially benefit most taxpayers.

The changes announced in Budget by Finance Minister Nirmala Sitharaman with regard to short-term and long-term capital gains tax rates and holding period are effective immediately which is July 23, 2024.

In a post on X, the Income Tax department said the rate for other LTCG on all assets has been rationalised to 12.5 per cent without indexation. This rate was earlier 20 per cent with indexation.

This will ease in simplifying the taxation of capital gains and their easy computation, it said.

“The drastic reduction in the rate will benefit all category of assets. In most of the cases, the taxpayers will benefit substantially. But where the gain is limited vis-a-vis inflation, the benefit may also be limited or absent in a few cases. But roll-over benefits continue to be available as they were available earlier,” the I-T department said.

Since the rate for LTCG is uniform now for all categories of assets, it will make it easier for the taxpayer in computing capital gains. Moreover, the choice of instrument will now be market-driven rather than for tax considerations, it added.

Effective Tuesday, the rate for short-term capital gains tax on listed equity, equity oriented mutual fund and units of business trust has increased from 15 to 20 per cent.

Similarly, the rate for these assets for long-term has increased from 10 per cent to 12.5 per cent. However, the exemption limit of Rs 1 lakh for LTCG on these assets has been increased to Rs 1.25 lakh.

Listed financial assets will have to be held for more than one year, while unlisted financial assets and all non-financial assets for at least two years to qualify for long-term capital gains tax.

Since there is no change in rollover benefits already available under the IT Act, taxpayers who want to save on LTCG tax even with low rates, can continue to avail of the rollover benefits on fulfilment of conditions as applicable, the department said.