Capital Gains Tax FAQs — LTCG, STCG, Section 54 & 112A

These questions are drawn from real GST compliance scenarios, litigation, and common queries from practitioners. Answers reflect the law as amended up to Finance Act 2024.

• 1 What is the holding period to qualify as long-term capital gains on equity shares?

  For listed equity shares and equity-oriented mutual fund units, the holding period to qualify as long-term capital asset is more than 12 months. For unlisted shares, the threshold is 24 months. For immovable property and debt mutual funds, the threshold is 24 months (after Budget 2024 changes for debt MFs).

• 2 What is the LTCG tax rate on listed equity shares after Budget 2024?

  Under Section 112A, LTCG on listed equity shares, units of equity-oriented mutual funds, and units of business trusts exceeding ₹1,25,000 in a financial year are taxed at 12.5% (increased from 10% by Finance (No. 2) Act 2024, applicable from 23 July 2024). Gains up to ₹1.25 lakh remain exempt. No indexation or foreign exchange benefits are available.

• 3 How is Section 54 exemption calculated on sale of a house?

  Under Section 54, if a residential house held for more than 24 months is sold and the LTCG (not the sale price) is re-invested in purchasing or constructing another residential house in India within the prescribed time (1 year before / 2 years after for purchase; 3 years for construction), the LTCG is exempt to the extent of the cost of the new house. The new house cannot be sold within 3 years, else the exemption is withdrawn. Maximum exemption capped at ₹10 crore (w.e.f. AY 2024-25).

• 4 What is the difference between Section 54 and Section 54F?

  Section 54 applies when a residential house property is sold — the taxpayer must re-invest the LTCG in another residential house. Section 54F applies when any long-term capital asset (other than a residential house) is sold — the taxpayer must re-invest the entire net sale consideration (not just the gains) in a residential house. Under 54F, if only part of the consideration is invested, proportionate exemption is allowed. Both require the taxpayer to not own more than one residential house (other than the new house) on the date of transfer.

• 5 Is indexation benefit available on property sold after July 23, 2024?

  Finance (No. 2) Act 2024 removed indexation from LTCG on property, lowering the rate to 12.5% without indexation (previously 20% with indexation). However, a relief provision was inserted for residents: if property was purchased before 23 July 2024, taxpayers can choose between (a) 12.5% without indexation or (b) 20% with indexation, whichever is lower. Non-residents and companies do not get this choice.

• 6 What are the capital gains tax implications of redeeming debt mutual funds?

  After Finance Act 2023, gains on debt mutual funds (where equity ≤35% of portfolio) purchased on or after 1 April 2023 are taxed at slab rates — irrespective of holding period (no distinction between STCG and LTCG, and no indexation). Funds purchased before 1 April 2023 continue to get the old treatment (LTCG at 20% with indexation if held >36 months). Finance (No. 2) Act 2024 further aligned the holding period threshold for debt MFs to 24 months.

• 7 Can capital losses be set off against capital gains?

  Yes, with restrictions. Short-term capital loss (STCL) can be set off against both STCG and LTCG. Long-term capital loss (LTCL) can be set off only against LTCG (not against STCG). Unadjusted capital losses can be carried forward for 8 assessment years and set off against future capital gains of the appropriate type. The return must be filed within the due date to carry forward capital losses.

• 8 What is Section 50C and how does it affect property sales?

  Section 50C provides that if the actual consideration received on sale of immovable property is less than the stamp duty value (circle rate), the stamp duty value is deemed to be the full value of consideration for computing capital gains. If the difference between actual price and stamp duty value does not exceed 10%, the actual price is used. The excess is also taxed as 'income from other sources' in the hands of the buyer under Section 56(2)(x).