Overview on Capital Gain Provision on Period of Holding

Overview on Capital Gain Provision on Period of Holding 

The provided chart outlines the period of holding for determining whether a capital asset is classified as a Short-Term Capital Asset or a Long-Term Capital Asset u/s 2(42A) of the Income Tax Act.  Capital Gains Tax can significantly impact investment returns. With the 2024 Budget changes, it is vital to plan transactions effectively to maximize tax efficiency.

Types of Capital Gains

1. Short-Term Capital Gains (STCG)
   • Assets held for a short period (12 or 24 months depending on the type of asset).
   • Gains from the sale of such assets are taxed as per normal income tax slab rates, except in specific cases where the rate is predefined (e.g., listed shares).
2. Long-Term Capital Gains (LTCG)
   • Assets held for a longer duration (more than 12 or 24 months depending on the type of asset).
   • Gains are taxed at concessional rates (e.g., 12.5% for some assets as per the latest budget changes).

Transfers Before 23.7.2024:

Below table outlines the period of holding requirements to classify a capital asset as a short-term capital asset or a long-term capital asset u/s 2(42A) of the Income Tax Act.

1. STCA (≤ 12 months):
   • Security listed on a recognized stock exchange.
   • Unit of an equity-oriented fund/unit of UTI.
   • Zero Coupon Bonds.
2. LTCA (> 12 months):
   • Same as above.
3. STCA (≤ 24 months):
   • Unlisted shares.
   • Land or buildings.
4. LTCA (> 24 months):
   • Same as above.
5. STCA (≤ 36 months):
   • Unlisted securities (other than shares).
   • Other capital assets.
6. LTCA (> 36 months):
   • Same as above.

Transfers On or After 23.7.2024:

1. STCA (≤ 12 months):
   • Security listed on a recognized stock exchange.
   • Unit of equity-oriented fund/UTI.
   • Zero Coupon Bonds.
2. LTCA (> 12 months):
   • Same as above.
3. STCA (≤ 24 months):
   • Other capital assets.
4. LTCA (> 24 months):
   • Same as above.

Capital Gains Tax Rates (Post Budget 2024)

Type of Asset	Condition	Tax Rate (Post Budget 2024)
Listed Equity Shares	STT Paid	12.5% above ₹1.25 lakh (long-term capital asset)
Other Assets	–	12.5% (long-term capital asset)
Debt Mutual Funds	–	Normal slab rates (Short-Term Capital Gains)
Unlisted Bonds & Debentures	–	Normal slab rates (Short-Term Capital Gains)

Special Notes (Section 50AA):

The following assets will always generate Short-Term Capital Gains, regardless of the holding period:

1. Units of specified mutual funds acquired on or after 1.4.2023.
2. Market-linked debentures.
3. Unlisted bonds and debentures transferred or redeemed on or after 23.7.2024.

This classification is crucial for calculating capital gains and determining the applicable tax rates.

Tax-Saving Strategies- Exemptions from Capital Gains Tax: 

Exemptions are available under various sections of the Income Tax Act, provided certain conditions are met. Common sections include:

• Section 54: Exemption on long-term capital asset from the sale of house property if reinvested in another residential property.
• Under Section 54F: Similar to Section 54 but applies to assets other than residential property.
• Section 54EC: Investment in bonds like NHAI or REC to claim exemption. Utilize Section 54EC to reinvest long-term capital asset in government-specified bonds.
• Reinvest in Real Estate: Use Section 54/54F to reinvest proceeds into residential properties
• Utilize Basic Exemption Limit: Senior citizens and individuals with lower income can offset gains against their basic exemption limit.
• Timing the Sale: Hold assets for long-term to benefit from lower tax rates on long-term capital asset.