Capital Gains in India for FY 2023-24

Comprehensive Tax Guide with Latest Updates

Understanding the nuances of capital gains is essential for effectively managing investments and tax liabilities. Here’s a comprehensive overview of capital gains taxation in India for FY 2023-24, including types, exemptions, deductions, and calculation methods to optimize your financial planning.

Types of Capital Gains

Capital gains are categorized into two types based on the holding period of the asset:

1. Short-Term Capital Gains (STCG)
2. Long-Term Capital Gains (LTCG)

Short-Term Capital Gains (STCG)

Short-term capital gains arise from the sale of assets held for a shorter duration.

1. Equity and Equity-Oriented Mutual Funds:

• Holding Period: Less than 12 months.
• Tax Rate: 15% under Section 111A.

2. Other Assets (e.g., property, gold):

• Holding Period: Less than 36 months.
• Tax Rate: As per the individual’s income tax slab.

Long-Term Capital Gains (LTCG)

Long-term capital gains arise from the sale of assets held for a longer duration.

1. Equity and Equity-Oriented Mutual Funds:

• Holding Period: More than 12 months.
• Tax Rate: 10% without indexation on gains exceeding ₹1,00,000 under Section 112A.

2. Other Assets (e.g., property, gold):

• Holding Period: More than 36 months.
• Tax Rate: 20% with indexation benefits under Section 112.

Exemptions and Deductions

The Income Tax Act provides several provisions that allow taxpayers to claim exemptions and deductions on capital gains:

1. Section 54:

• Exemption on LTCG from the sale of residential property if the gains are reinvested in another residential property.
• Conditions apply regarding the timeframe for reinvestment and the number of properties purchased.

2. Section 54EC:

• Exemption on LTCG from the sale of any asset if the gains are reinvested in specified bonds (e.g., NHAI or REC) within six months of the sale.
• Maximum investment limit is ₹50,00,000.

3. Section 54F:

• Exemption on LTCG from the sale of any asset other than a residential property if the gains are reinvested in a residential property.
• Conditions apply regarding the timeframe and use of the new property.

4. Section 54B:

• Exemption on LTCG from the sale of agricultural land if the gains are reinvested in the purchase of another agricultural land.

5. Section 54GB:

• Exemption on LTCG from the sale of residential property if the gains are reinvested in the equity shares of an eligible startup.
• Conditions apply regarding the shareholding and usage of the funds by the startup.

Calculation of Capital Gains

Calculating capital gains involves several steps:

1. Full Value of Consideration:
   • The amount received or to be received from the transfer of the capital asset.
2. Cost of Acquisition:
   • The price at which the asset was originally acquired.
   • For assets acquired before April 1, 2001, the taxpayer can choose the higher of the actual cost or the Fair Market Value (FMV) as of April 1, 2001.
3. Cost of Improvement:
   • Expenses incurred in making improvements to the asset.
4. Indexed Cost of Acquisition and Improvement:
   • The cost of acquisition and improvement is adjusted for inflation using the Cost Inflation Index (CII).
5. Expenditure on Transfer:
   • Expenses directly related to the transfer, such as brokerage fees, legal expenses, etc.

Formula for Calculation:

• Short-Term Capital Gains: Full Value of Consideration – (Cost of Acquisition + Cost of Improvement + Expenditure on Transfer)
• Long-Term Capital Gains: Full Value of Consideration – (Indexed Cost of Acquisition + Indexed Cost of Improvement + Expenditure on Transfer)

Also read: How can a Step-by-Step Guide for Individual Income Taxpayers Help to Plan and File Income Tax Returns

Special Considerations for Capital Gains

1. Capital Gains Account Scheme (CGAS):

• Taxpayers who are unable to reinvest the capital gains before the due date of filing the tax return can deposit the unutilized amount in the Capital Gains Account Scheme.
• This allows them to claim the exemption and reinvest the amount later.

2. Set-off and Carry Forward of Losses:

• Short-term capital losses can be set off against both short-term and long-term capital gains.
• Long-term capital losses can only be set off against long-term capital gains.
• Unadjusted losses can be carried forward for eight assessment years.

3. Double Tax Avoidance Agreement (DTAA):

• Taxpayers who are residents of countries with which India has a DTAA can claim relief from double taxation on capital gains.

4. Tax on Gifted Assets:

• When an asset is received as a gift, the cost of acquisition for the recipient is the same as the cost to the previous owner.
• The period of holding includes the period for which the asset was held by the previous owner.

Important Updates for FY 2023-24

Several key updates have been made to the capital gains tax regime in India for the financial year 2023-24:

Indexation Benefit Removal for Non-Equity Mutual Funds:

From April 1, 2023, long-term capital gains from debt mutual funds are treated as short-term and taxed according to the individual’s income tax slab rate, removing the previous benefit of indexation​ (mint)​​ (Tax India Updates In)​.

Maximum Deduction Limit:

From the assessment year 2024-25, there is an upper limit of ₹10 crore for deductions under various sections such as Section 54 and 54F. If the cost of the new asset exceeds ₹10 crore, the cost will be deemed as ₹10 crore for deduction purposes​ (TaxIndiaUpdates In)​.

By understanding these updates and the nuances of capital gains tax, taxpayers can effectively manage their tax liabilities and optimize their financial planning. Consulting with a tax professional is advisable for personalized guidance and compliance with the latest tax regulations.

About the Author: Taresh Bhatia is a CERTIFIED FINANCIAL PLANNER PRO and author of the Amazon bestseller “The Richness Principles.” He can be reached at taresh@tareshbhatia.com.

Disclaimer: The information provided in this article is for general informational purposes only and reflects the latest updates on income tax slabs in India as of the current fiscal year. Viewers are advised to consult with a qualified tax professional for personalized advice and to verify the latest tax regulations.

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