Income tax rules changed for LTCG, you can choose new/old system, see calculation

From this year, there have been some changes in the rules of long term capital gain tax, which were announced in the budget. If you have also made any long term capital gain, then you should know its rules related to income tax.

All the ITR forms have been notified by the Income Tax Department. Now before filing the Income Tax Return, many people want to understand the rules related to Income Tax Return. They also want to know which tax regime they should choose. From this year, there have been some changes in the rules of long term capital gain tax, which were announced in the budget. If you have also made any long term capital gain, then you should know its rules related to income tax.

What are the rules of long term capital gain tax

The new rules for long term capital gain have come into effect from 23 July 2024. That is, while filing ITR, you will have to calculate the long term capital gain tax before and after 23 July separately. According to the new rule, long term capital gain tax has become 12.5 percent, which was earlier 10 percent. Let us tell you that the limit of LTCG exemption has been increased from Rs 1 lakh to Rs 1.25 lakh.

Also know about short term capital gain tax

If you have short term capital gain, then you will have to pay tax at the rate of 15 percent before July 23, whereas after July 23, you will have to pay tax at the rate of 20 percent. There is no tax exemption under short term capital gain. That is, whether you have a profit of Rs 100 or Rs 1 lakh, you will have to pay tax at a flat rate of 20 percent on all.

This is how you will get the benefit of indexation benefit in LTCG

Under the new rules, the government had reduced the tax rate, but also removed the indexation benefit. Some changes were made in this in Budget 2024. Now the government has given people the option to choose either of the new and old tax systems. That is, if you are getting less capital gains tax at the rate of 12.5 percent with indexation, then choose it, otherwise choose the tax of 20 percent. If seen, now in LTCG taxation also there is a new and old tax system like Income Tax.

What has the government said?

According to the revised proposal, any person or Hindu Undivided Family (HUF) buying a house before July 23, 2024 can choose to pay tax under the new scheme of 12.5 percent without including the effect of inflation (indexation). Apart from this, he will also have the option of 20 percent tax with indexation under the old scheme. Out of the two options, whichever yields less tax, he can pay it.

What was announced in the budget?

The government had reduced the rate of long term capital gain tax on the sale of property purchased after 2001 from 20 per cent to 12.5 per cent. However, the benefit of indexation available earlier was removed. Indexation is an index, in which the price of assets is adjusted according to inflation. This index is updated every year. Suppose you have purchased a property in 1970, then you will get the benefit of getting the fair value of 2001. But under the new proposal, you will not be able to avail the benefit of indexation from 2001 to 2024.

Also understand the calculation of profit and loss

Till now the new system was made mandatory, which benefited some people, but many people were also suffering losses. Suppose you bought a house worth Rs 50 lakh in 2001, which you sell for Rs 2 crore during 2024-25. In such a situation, in the new system, you do not get the benefit of indexation and your total profit is Rs 1.5 crore. Under the new system, you would have to pay a tax of 12.5 percent i.e. about Rs 18.75 lakh on this.

On the other hand, if you choose the old system of long term capital gain tax in this case, then now you will get the benefit of indexation. If indexation is added, then the value of your house in 2024-25 comes out to be around Rs 181.50 lakh. That is, on selling this house for Rs 2 crore, your long term gain tax will be considered as Rs 18.50 lakh. On this you will have to pay 20 percent tax, which comes out to be around Rs 3.7 lakh. That is, in this case, if you go with the old capital gain tax system, you will get a benefit of about Rs 15.05 lakh.

What is short and long term capital gain?

If the holding period for listed financial assets is more than 12 months, then it is called long term capital gain. On the other hand, if the holding period is less than 12 months, then the profit from it is called short term capital gain. At the same time, the period of LTCG for unlisted and non-financial assets has been made 2 years. Apart from this, capital gains on unlisted bonds, debentures, debt mutual funds and market linked debentures are applicable as per the income tax slab of the investor.

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