Finance Minister Nirmala Sitharaman is poised to unveil her seventh Budget for the fiscal year 2024-25 on July 23. According to a report by the Economic Times, the government is considering reducing the holding period for long-term capital gains (LTCG) tax on real estate from the current 24 months to just 12 months. This adjustment would align the treatment of real estate investments with that of mutual funds and equities.
As reported by the Economic Times, which cited an insider familiar with the discussions, the tax rates for long-term capital gains are expected to remain unchanged despite this proposed reduction in the holding period. Presently, long-term capital gains tax applies to real estate investments held for more than 24 months. In contrast, mutual funds and equities require a holding period of over 12 months to qualify for long-term capital gains treatment, while gold and debt funds have a holding period of over 36 months.
For investments held for a period shorter than these thresholds, short-term capital gains (STCG) tax is applicable. The STCG tax rate for real estate and gold/debt funds is based on the investor’s applicable slab rate, whereas the STCG tax on listed equities and mutual funds is set at 15 percent. Long-term capital gains on real estate and gold/debt funds are taxed at 20 percent with indexation benefits, while gains on equities and mutual funds are taxed at 10 percent (with an exemption of up to Rs 1 lakh).
The Economic Times report also suggested that the government might consider a more comprehensive restructuring of the capital gains tax regime in the future, following further discussions and consultations.
The market is closely monitoring any changes to the long-term capital gains tax. JM Financial Services Research indicated that any adverse adjustments to the capital gains tax on equities would be scrutinized. Conversely, maintaining the current capital gains tax structure would be seen as a positive development for the Indian equity markets.