Budget heralds big bang tax reforms, simplifies long term capital gains: Experts

Allaying the fears of investors on long-term capital gains (LTCG) tax, they said the whole idea of the government is to simplify the capital gains framework.

There are multiple holding periods and tax rates which are there in the current LTCG framework that have been reduced and streamlined, so now, it's very simple.

“There are only two holding periods which you have to look out for -- 12 months for listed securities and 24 months for non-listed securities, including real estate. So even debt instruments which had a holding period of 36 months have been reduced to 24 months,” Harsh Bhuta, Partner, Bhuta Shah and Co, told IANS.

For listed securities, the LTCG tax rate has increased from 10 per cent to 12.5 per cent which is a marginal hike.

“For assets which are not listed in the markets, which include immovable property, the tax rate has been reduced from 20 per cent with indexation to 12.5 per cent without indexation,” explained Bhutan.

According to him, this may not have a significant impact because the “idea of the government is not to complicate things with the taxation. So, if you have purchased a property in the 1970s, you can take the fair market value of the property as of 2001. You will not get indexation from 2001 till 2024 so this is the only thing you are losing on.”

It means if you bought a property before 2001, you can still use the property valuation from April 2001 to calculate the indexed price.

The tax rates on these gains will be lower at 12.5 per cent instead of 20 per cent.

The LTCG tax rate is now lower and around 95 per cent of sellers will not be negatively affected.

Ridhima Bhatia, DGM of Taxmann, told IANS that there will now be only two classifications for holding periods in LTCG tax -- 12 months for listed securities and 24 months for unlisted securities.

“The Budget removed indexation for LTCG and also reduced the tax rate from 20 per cent to 12.5 per cent,” she said.