LTCG Tax Rule Changes Effective July 23: What Taxpayers Need To Know

A significant shift in the capital gains tax regime took effect today, July 23, marking a key cut-off date for property and asset transactions that will impact tax liability for the assessment year 2025–26.

Taxpayers need to be especially cautious about how the timing of their purchase or sale of capital assets—such as property, land or shares—will now affect how their gains are taxed.

As per the amended tax provisions under the Finance (No. 2) Bill, 2024, capital assets bought on or after July 23, 2024, will no longer qualify for indexation benefits under the older tax regime, reported IANS.

Instead, these assets will be taxed at a flat long-term capital gains (LTCG) rate of 12.5 per cent without indexation, while offering a standard exemption of Rs 1.25 lakh on gains.

Indexation Removed for Post-July 23 Assets

Indexation, which adjusts the original purchase cost of an asset for inflation, has long helped taxpayers reduce their taxable gains. However, that benefit is now reserved only for those who acquired their capital asset before the July 23 cut-off. Those taxpayers still have the option to choose between the old regime—which taxes LTCG at 20 per cent with indexation—or the new 12.5 per cent flat rate without indexation. Tax experts advise choosing the method that results in a lower tax burden.

It’s important to note that if the property or asset is held for less than two years (or less than one year in the case of listed securities), the gain will be considered short-term and taxed as per the individual's applicable income tax slab rate.

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New Holding Period Rules Simplify Tax Classification

The revised regulations also bring clarity to how long an asset must be held to qualify for long-term capital gains tax. The holding period is now fixed at one year for listed equities and two years for all other capital assets—including real estate, gold, and debt mutual funds. Previously, this period varied, ranging from one year for equities to up to 36 months for other asset classes.

This regulatory change, while simplifying the tax framework, demands that taxpayers reassess the timing of their purchases and sales to make optimal tax decisions. Experts recommend evaluating the impact of both regimes carefully before filing income tax returns for AY 2025–26.

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