AY 2025-26 LTCG Tax: New Rates, Indexation, and Income Tax Bill Clarified

Tax laws change frequently, making it hard to keep up, particularly with complicated areas like capital gains. Recently, there has been considerable talk and some misunderstandings about changes to the Long Term Capital Gains (LTCG) tax rates. This blog post aims to clarify the recent updates that affect your tax liability for Assessment Year 2025-26 (Financial Year 2024-25) and address the rumors about the proposed Income Tax Bill, 2025.

Understanding Long Term Capital Gains (LTCG)

First, let’s quickly recap what LTCG means. Capital gains come from selling a 'capital asset' (like shares, mutual funds, real estate, or gold). These gains are labeled 'long-term' if you hold the asset for a specified time before selling. The holding period varies by asset class. LTCG usually has lower tax rates compared to short-term capital gains (STCG) or regular income.

The Major Update: Changes Effective from July 23, 2024 (AY 2025-26)

The biggest changes to LTCG tax rates and rules were introduced in the Union Budget 2024 (July 2024), effective from July 23, 2024. These changes are important for your tax calculations for Assessment Year 2025-26.

Here's a breakdown of what to expect for different asset classes:

1. Equity Shares and Equity-Oriented Mutual Funds (Listed)

• Holding Period for LTCG: Over 12 months.
• Old Rule (Until July 22, 2024): LTCG over ₹1 lakh was taxed at 10% (under Section 112A) without indexation benefit.
• New Rule (From July 23, 2024): LTCG over ₹1.25 lakh (exemption limit increased) is now taxed at a fixed 12.5%, still without indexation benefit.
• Impact: A slight tax rate increase and a minor raise in the basic exemption limit.

2. Debt Mutual Funds and Other Non-Equity Assets (e.g., Gold, Silver, Debt ETFs)

• Holding Period for LTCG:
  • Previously: Over 36 months.
  • New Rule (From July 23, 2024): Now, for assets bought on or after this date, the holding period for LTCG is generally over 24 months.
• Old Rule (Until July 22, 2024): LTCG was taxed at 20% with indexation benefit.
• New Rule (From July 23, 2024):
  • For assets bought on or after this date, LTCG is now taxed at a flat 12.5% without indexation benefit.
  • For assets bought before this date and sold after, taxpayers can choose: either pay 20% with indexation or 12.5% without indexation, selecting the option that minimizes tax.
• Impact: The removal of indexation for new acquisitions is a significant change that could lead to higher taxable gains despite a lower nominal rate.

3. Immovable Property (Land and Building)

• Holding Period for LTCG: Over 24 months.
• Old Rule (Until July 22, 2024): LTCG was taxed at 20% with indexation benefit.
• New Rule (From July 23, 2024):
  • For property bought on or after this date, LTCG is now taxed at 12.5% without indexation benefit.
  • For property bought before this date and sold after, individuals and HUFs can choose between 20% with indexation or 12.5% without indexation, depending on what is more beneficial.
• Impact: Similar to debt funds, the removal of indexation for newly acquired property is a major change that requires careful planning.

4. Unlisted Equity Shares

• Holding Period for LTCG: Over 24 months.
• New Rule (From July 23, 2024): LTCG is taxed at 12.5% without indexation benefit. Previously, it was 20% with indexation.
• Impact: A simpler tax rate, but the removal of indexation can increase tax liability.

Clearing the Confusion: The Income Tax Bill, 2025

You may have come across news or social media claims suggesting that the new Income Tax Bill, 2025, proposes more changes to LTCG tax rates or even looks to eliminate existing exemptions on equity investments.

The Income Tax Department has confirmed that these claims are unfounded.

• Purpose of the Bill: The Income Tax Bill, 2025, introduced in Lok Sabha in February, primarily aims to simplify the wording of the Income Tax Act, 1961, and eliminate outdated provisions.
• No Rate Changes: The IT Department stated that "It does not seek to change any rates of taxes." Major changes to tax rates, slabs, or exemptions usually come through the Finance Bill presented during the Union Budget.
• Focus on Clarity: This new Bill is a significant effort to modernize tax laws, making them easier to understand and more technology-friendly, without changing the current tax structure or rates.

So what does this mean for you? Do not worry based on unverified reports. Your tax planning for FY 2024-25 (AY 2025-26) should consider the changes that began on July 23, 2024, as outlined above, rather than speculative claims about the Income Tax Bill, 2025.

Navigating the New Landscape for AY 2025-26

The changes effective from July 23, 2024, especially the removal of indexation for many asset classes, mean that calculating your LTCG can be more complex.

• Date of Acquisition & Sale Matters: The date you bought and sold your assets will define which rules apply (old vs. new), especially for non-equity assets and property.
• Calculate Both Ways (where relevant): For assets purchased before July 23, 2024, and sold after, it’s smart to calculate LTCG using both the 20% with indexation and 12.5% without indexation methods to find the better option.
• Record Keeping is Key: Keep accurate records of your purchase and sale dates, cost of acquisition, and any improvement costs.

Seek Expert Help for Smooth Filing

Understanding and applying these LTCG rules can be tricky, particularly with different holding periods and new indexation rules. Mistakes can result in wrong tax payments or notices from the Income Tax Department.

Don’t leave your capital gains tax calculations to chance. For accurate guidance and easy tax filing, consider reaching out to the experts at MyITROnline. Our professionals understand the latest tax laws and can help you minimize your tax liability while ensuring compliance.

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