Lok Sabha Passes Finance Bill, Amends Provision on LTCG Tax
- August 8, 2024
- Posted by: OptimizeIAS Team
- Category: DPN Topics
Lok Sabha Passes Finance Bill, Amends Provision on LTCG Tax
Sub: Eco
Sec: Fiscal Policy
Finance Bill, 2024 Passed:
- Amendment on LTCG Tax:
- Relaxation on the proposal for the long-term capital gains (LTCG) tax on real estate.
- Taxpayers can switch to a new lower tax rate or stick to the old regime with indexation benefits.
Amendment Details:
- Original proposal in the Budget 2024-25:
- Remove indexation benefit for LTCG on sale of immovable properties.
- Lower LTCG tax rate from 20% to 12.5%.
- New Amendment:
- Individuals or Hindu Undivided Families (HUFs) who bought houses before July 23, 2024, can choose:
- 12.5% tax without indexation.
- 20% tax with indexation benefits.
- Individuals or Hindu Undivided Families (HUFs) who bought houses before July 23, 2024, can choose:
Passage of the Bill:
- Passed by a voice vote with 45 official amendments.
Opposition’s Criticism and Finance Minister’s Response:
- Criticism: Middle class is heavily taxed.
- Response:
- Budget proposals aimed at promoting investment and benefiting the middle class.
- Simplified taxation regime introduced by the Modi government.
- Reduction in customs duty on various goods to promote trade and generate employment.
- Tax exemption limit on LTCG in listed equities and bonds increased to ₹1.25 lakh from ₹1 lakh.
- 72% of taxpayers opted for the new regime while filing returns this year.
GST on Health and Life Insurance Premiums:
- Opposition Demand: Removal of 18% GST on insurance premiums.
- Minister’s Response:
- 75% of GST collected goes to the states.
- States previously levied taxes on insurance premiums before GST was rolled out.
- Any amendment in GST must be approved by the GST Council.
The Finance Bill, 2024, has been passed with significant amendments, particularly concerning LTCG tax on real estate, allowing taxpayers more flexibility.
Capital Gains Tax (CGT) Overview
Any profit or gain arising from the sale of a ‘capital asset’ is categorized as a capital gain. This gain or profit is considered ‘income’ and is subject to capital gains tax in the year of the transfer of the capital asset.
Examples of Capital Assets:
- Land, buildings, house property, vehicles, patents, trademarks, leasehold rights, machinery, and jewellery.
- Rights in or in relation to an Indian company, including rights of management, control, or any other legal rights.
Types of Capital Gains:
Short-term Capital Gains Tax (STCG):
Applicable to assets held for less than 12 months.
Immovable Properties: The holding period is 24 months.
Taxation: Profits from the sale of these assets are taxed as short-term capital gains.
Long-term Capital Gains Tax (LTCG):
Definition: Applicable to assets held for over 24 months.
Examples: Preference shares, equities, UTI units, securities, equity-based Mutual Funds, and zero-coupon bonds held for over a year.
Taxation: Profits from the sale of these assets are taxed as long-term capital gains.
Recent Budget Amendments
Revised Holding Periods:
New Classification: Only two holding periods will be considered—12 months and 24 months.
Removed: The 36-month holding period has been eliminated.
Listed Securities: All listed securities with a holding period exceeding 12 months are considered long-term.
Increased Tax on Short-term Gains:
Short-term Capital Gains on listed equity shares, a unit of an equity-oriented fund, and a unit of a business trust:
Increased Tax Rate: From 15% to 20%.
Other Assets: Continue to attract tax at slab rates.
Exemption and Tax Rate Adjustments for Long-term Gains:
Exemption Limit:
Increased from ₹1 lakh to ₹1.25 lakh per year for long-term capital gains on the transfer of equity shares, equity-oriented units, or units of Business Trust.
Increased Tax Rate: From 10% to 12.5% (effective from July 23, 2024).
Realized Gain: Results from selling an asset at a price higher than the original purchase price, exceeding its book value cost.
Unrealized Gains: Gains while the asset is still being held are considered unrealized since the asset is only valued at fair market value.
Inherited Property:
Exemption: Capital gains are not applicable to an inherited property as there is no sale but only a transfer of ownership.
Sale of Inherited Property: If the inherited asset is sold, capital gains tax will be applicable.