Amendment regarding capital gain under Income Tax Act,1961

Under the Finance Act, 2024, several amendments have been made to various sections related to capital gains. Two key amendments, in particular, came into effect from July 23, 2024, which we are covering in this article:
1. Removal of indexation on Long-Term Capital Gain (LTCG) calculations.
As per the Income Tax Act,1961 read with Finance Act, 2024, rates for capital gain of capital assets are as follows:

Period
Class of Assets

Listed EquityU/s 112A
Other Assets(Incl. Unlisted Shares) u/s 112
Immovable Property U/s 112

Before 23rd July,2024
10%
20% with Indexation
20% with Indexation

On or after,
23rd July,2024
12.50%**
12.5% without indexation
Lower of:
12.5% without indexation or20% with Indexation*

* Indexation on the sale of immovable property is available only if the following conditions are met:

Assessee must be a residential Individual or HUF.
The property was purchased before 23rd July 2024 and sold on or after 23rd July 2024.

** Additionally, the LTCG exemption limit under Section 112A for listed equity shares has been increased from INR 1,00,000 to INR 1,25,000 for FY 2024-25.
The following example demonstrates how a resident individual or HUF might compute capital gains on sale of immovable property.
Example 1:
Mr X (residential Ind) sells his house in Mumbai for INR 1,25,00,000 on 1st October 2024. The property was purchased on 25th February 2020 at INR 90,00,000. He renovated the house on 11st April 2021 which was completed by August 2021. The overall cost of renovation amounted to INR 7,00,000..
Example 2:
In continuing with the above example, we change the cost of acquisition from INR 90,00,000 to INR 95,00,000.
Example 3:
In continuing with the above example, let’s assume the cost of acquisition to be INR 65,00,000
Example 4:
In continuing with the above example, let change the Full value of consideration to be INR 80,00,000
Solution:
Calculation of Capital Gain without Indexation:

Particulars
Example 1
Example 2
Example 3
Example 4

Amount (INR)
Amount (INR)
Amount (INR)
Amount (INR)

Full value of consideration
1,25,00,000
1,25,00,000
1,25,00,000
80,00,000

Less: Cost of Acquisition
90,00,000
95,00,000
65,00,000
90,00,000

Less: Cost of Improvement
7,00,000
7,00,000
7,00,000
7,00,000

Long-term Capital Gain/(Loss)
28,00,000
23,00,000
53,00,000
(17,00,000)

Calculation of Capital Gain with Indexation:

Particulars
Example 1
Example 2
Example 3
Example 4

Amount (INR)
Amount (INR)
Amount (INR)
Amount (INR)

Full value of consideration
1,25,00,000
1,25,00,000
1,25,00,000
80,00,000

Less: Indexed Cost of Acquisition
1,13,04,498
1,19,32,526
81,64,360
1,13,04,498

Less: Indexed Cost of Improvement
8,01,577
8,01,577
8,01,577
8,01,577

Long-term Capital Gain
3,93,924
(2,34,103)
35,34,063
(41,06,076)

Calculation of Tax Liability on Capital Gain:

Particulars
Example 1
Example 2
Example 3
Example 4

Amount (INR)
Amount (INR)
Amount (INR)
Amount (INR)

Tax charge @ 12.5% without Indexation
3,50,000
2,87,500
6,62,500
–

Tax charge @ 20% with Indexation
78,785
–
7,06,813
–

Tax to be paid (Lower of the above)
78,785
–
6,62,500
–

Losses to be carried forward
Nil
Nil, since the sale value is higher than the cost
Nil
17,00,000
 

From the given scenario in example 2, we can infer that long-term capital losses incurred through indexation cannot be carried forward unless there is an actual loss where the Sale value is less than the Purchase price. Thus, in Example 4, losses can be carried forward because there are actual losses.
In Example 3, we see that a 12.5% tax rate without indexation proves advantageous, demonstrating that when property values rise significantly, this amendment can offer tax benefits.
2. Change in holding period determining the classification of Capital assets u/s 2(42a).
The number of months required to classify a capital asset as long-term:

Class of assets
Prior 23/7/24
On or after 23/7/24

No. of Months
No. of Months

Listed Security (other than a unit), Unit of Unit trust of India, Unit of Equity Oriented fund or zero-coupon bond
12
12

Unlisted shares or Immovable property
24
24

Units of Business Trust and Other Listed Units
36
12

Other assets
36
24

Authors: CA Shreyans Dedhia | Email id: [email protected] | Contact: 9870925375 | LinkedIn Profile Krish Rathore LinkedIn Profile