Decoding Long-Term Capital Gains Tax for ITR 2025 (FY 2024-25)
Taxpayers who sold capital assets, such as property or jewellery, during the financial year 2024-25 (Assessment Year 2025-26) are liable for capital gains tax. Significant changes to these provisions, effective July 23, 2024, streamline holding periods and introduce new tax rates.
Understanding Long-Term Capital Gains (LTCG)
Long-term capital gains arise from the sale of a capital asset held for a specific duration. The new rules simplify this holding period:
- Listed Financial Assets: Assets like listed shares, equity mutual funds, and units of business trusts must be held for more than one year to qualify as long-term.
- Unlisted Financial Assets and All Non-Financial Assets: This category includes unlisted shares, property, and jewellery. These assets must be held for a minimum of two years to be classified as long-term.
Key Provisions for ITR 2025:
1. Tax Rates:
- Uniform LTCG Rate: For capital assets transferred on or after July 23, 2024, a flat 12.5% tax rate applies to long-term capital gains on all financial and non-financial assets.
- Indexation Benefit:
- Generally Removed: The benefit of indexation (adjusting the cost for inflation) has largely been removed for assets sold on or after July 23, 2024.
- Exception for Land/Building: If land or building was acquired on or before July 22, 2024, and sold on or after July 23, 2024, individual and HUF taxpayers have a choice:
- Pay 12.5% tax without indexation, OR
- Pay 20% tax with indexation benefit.
- For properties bought on or after July 23, 2024, the 12.5% rate applies without indexation.
- Debt Funds, Unlisted Bonds, Market-Linked Debentures: Capital gains from these assets, regardless of holding period, will be taxed at your applicable income tax slab rates.
2. Exemption Limits:
- Listed Financial Assets: An exemption of ₹1.25 lakh is available on long-term capital gains from certain listed financial assets (e.g., listed equity shares, equity-oriented mutual funds). Gains exceeding this amount will be taxed at 12.5%. This exemption applies to the aggregate LTCG from these assets for the entire financial year 2024-25, regardless of the sale date within the year.
- Other Assets: There isn’t a direct exemption limit for other assets; however, you can claim exemptions by reinvesting the gains (see point 4).
3. Short-Term Capital Gains (STCG):
- Specified Financial Assets: For listed equity shares, equity-oriented mutual funds, and units of business trusts, the STCG tax rate is 20% if the asset is sold within the short-term holding period (one year) and the transfer occurs on or after July 23, 2024.
- All Other Assets: For all other financial and non-financial assets, short-term capital gains will be taxed at your applicable income tax slab rates.
4. Exemptions through Reinvestment (Roll-over Benefits):
Taxpayers can reduce their LTCG tax liability by reinvesting the gains:
- Residential Property (Section 54):
- Reinvest the entire capital gain in a new residential property.
- The exemption is capped at ₹10 crore.
- The new property must be purchased either 1 year before or 2 years after the sale of the original asset, or constructed within 3 years from the sale date.
- If the sale proceeds are not fully invested within the same financial year, they must be deposited in a Capital Gains Account Scheme (CGAS) before the ITR due date.
- If the new property is sold within 3 years of purchase/construction, the earlier exemption is revoked.
- Specified Bonds (Section 54EC):
- Reinvest capital gains (primarily from land or building sales) up to ₹50 lakh in notified bonds within six months of the transfer.
- These bonds have a five-year lock-in period. Examples include bonds issued by NHAI, REC, PFC, and IRFC.
Important Note from CA Chirag Chauhan: “Taxpayers must be aware that when the sale of an asset (that led to capital gain) and the repurchase of another asset take place in different financial years, then certain rules kick in. For instance, one has to invest the sale proceeds in the capital gains account if not invested within the financial year, and ITR due dates fall in between. Additionally, there is a cap of ₹10 crore on the maximum exemption which is allow1ed.” He adds that for capital gains on securities, reinvesting the entire proceeds is important to claim the exemption.
These updated provisions aim to simplify capital gains taxation. Taxpayers should ensure they understand these rules to accurately calculate their tax liability for ITR 2025.