Income Tax Budget 2025 Live: Capital gains tax to be rationalised?
In the last Budget, government rationalised the capital gains structure in terms of holding period of assets and tax rates
According to EY, the government may address some of the unintended anomalies to make the rationalisation of capital gains more complete. For instance:
The period of holding for the following capital assets may be rationalised:
▪ For computation of capital gains arising on slump sale, the holding period for business undertaking may be reduced from 36 months to 24 months. This will be in line with the amendments made in Finance Act, 2024 which reduced the holding period for all capital assets to 12 or 24 months to turn into long term.
▪ The holding period for unlisted shares transferred under “Offer for Sale (OFS)” by existing promoters/PE investors in an Initial Public Offer is 2 years despite other tax treatment for such shares being identical to listed shares for whom holding period is 1 year. Government may reduce the holding period for unlisted shares transferred under OFS in IPO to 1 year
▪ As per the Finance (No. 2) Act, 2024 even if unlisted bonds are held for more than 24 months, the gains on transfer shall still be treated as short term capital gains.
▪ This provision may adversely impact sovereign wealth funds/pension funds that are eligible to claim exemption u/s. 10(23FE) for investment in debt and equity in infrastructure sector. Such funds are exempt only on long term capital gains arising from investment made by it in India, whether in the form of debt or share capital or unit.
▪ Government may provide an exception to such funds under the new treatment of capital gains for unlisted debentures.
Section 87A offers a rebate to individuals with a total taxable income of up to Rs 5 lakh under the old regime and Rs 7 lakh under the new tax regime.
▪ The benefit of rebate u/s. 87A is available for LTCG from listed equity, equity-oriented funds and units of business trust u/s. 112A. However, the rebate does not apply to any LTCG other than s.112A. ) or to STCG from listed equity, equity-oriented funds and units of business trusts.
▪ Since the capital gains tax rates have increased, and to bring parity, government may allow rebate u/s 87A on other income (capital gains) for small taxpayers
