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Published on 5 April 2025

Union Budget 2024-25: Key Changes to Long-Term Capital Gains Tax Explained

Long-Term Capital Gains (LTCG) Taxation Change Overview in Union Budget 2024-25

The Union Budget for 2024-25 makes significant changes to the long-term capital gains (LTCG) taxation regime with focus on compliance streamlining, encouraging investment, and lessening tax burden on the vast majority of taxpayers. Such reforms are outlined in the Finance (No. 2) Act, 2024, which responds to widespread concerns about the withdrawal of indexation relief and its implications on real estate as well as other long-term investments.

Key Changes in LTCG Taxation

1. Uniform Tax Rate across Asset Classes

The tax rate on LTCG has been made uniform to a flat 12.5% across all financial and non-financial assets. It replaces the earlier rates of 20% (indexation benefit available) for all other assets and 10% on listed equities. It simplifies tax planning and compliance by introducing uniformity in the tax treatment across asset classes.

2. Fixation of Holding Periods in Advance

  • Equity listed (e.g., stocks, equity mutual funds): now have a 1-year holding period for LTCG tax benefits.
  • Other assets (e.g., property, gold, unlisted shares): have a 2-year holding period for LTCG tax benefits.

This new system replaces varying holding periods (12, 24, or 36 months), which will make tax computation easier.

3. Removal of Indexation Benefit with Protection of Present Investors

Indexation—heretofore used to modify the acquisition cost of assets for inflation—has been removed for all assets acquired on or after July 23, 2024. However, there are certain concessions for existing investors:

  • Where properties are bought before July 23, 2024: Resident individuals and Hindu Undivided Families (HUFs) have an option of:
    • The new regime: 12.5% LTCG tax without indexation.
  • The old regime: 20% LTCG tax with indexation.

Taxpayers will have the freedom to avail of the option that will benefit them the least in terms of tax saved, so nobody will be adversely affected by the new provision.

4. Increased Exemption Threshold

The minimum exemption of LTCG has been increased from ₹1 lakh to ₹1.25 lakh per year, providing additional relief for small and medium investors.

5. Roll-Over Benefits Persist

Taxpayers are allowed to invest capital gains in specific instruments (such as residential property under Section 54 or certain bonds under Section 54EC) in order to defer or exempt LTCG tax, subject to conditions.

Justification for Government Reforms

  • Simplification: The reforms seek to simplify tax computation, filing, and maintenance by eliminating complex computations and multiple rates.
  • Market Driven Investment: Consistent rules allow investment choices to be market driven rather than tax driven.
  • Relief for the Taxpayer: The lower 12.5% rate will decrease the amount of tax payable by many, particularly where inflation-link gains have been low.
  • Relief for Investor Concerns: The government has eased concerns against indexation withdrawal by offering choices for buying properties prior to July 23, 2024, and preventing any detrimental effects on investors.

Investor Implications

A. Real Estate Investors

For example, if a Pune flat was purchased in 2015 for ₹80 lakh and sold in August 2025 for ₹1.6 crore, LTCG could be computed under both regimes:

  • Old Regime: Index the purchase price (via the Cost Inflation Index) and pay 20% on the indexed gain.
  • New Regime: Pay 12.5% on the difference between sale and purchase price (without indexation).

Investors have the option to take advantage of the lower tax burden mode, safeguarding their investments.

B. Other Asset Classes

For the investment such as gold, debt mutual funds, and unlisted shares bought after July 23, 2024, indexation will not be applicable. LTCG tax will be imposed at 12.5% on gains, which will be simpler but costlier for taxpayers who had previously utilized indexation.

C. Roll-Over and Exemption Provisions

Roll-over relief of gains on investments in residential property or earmarked bonds provides tax-effective planning. Increasing the exemption limit to ₹1.25 lakh will benefit more taxpayers in claiming gains without incurring any LTCG tax, significantly benefiting small investors.

D. Potential Concerns

  • Higher Tax Burden under High Inflation: The absence of indexation for long-term assets during high inflation can lead to a higher tax burden compared to previous regimes.
  • Set-Off of Losses Restrictions: Taxpayers will be prohibited from setting off indexation losses even on the assets purchased prior to July 23, 2024.
  • Restricted Opting Option: The option to choose between regimes is restricted to land and building, but not to all other asset classes.
  • Leasehold Rights Ambiguity: The inclusiveness of leasehold rights based on the beneficial option is subject to some conditions and interpretations of law.

Effect on Domestic Investments and Foreign Institutional Investors (FIIs)

Domestic Investors

These reforms are strategically designed to minimize compliance obligations and stimulate ongoing investment, notably in property. The government indicates that the reforms will not increase tax burdens for most taxpayers but instead grant more freedom and relief to existing property owners.

Foreign Institutional Investors (FIIs)

While the amendments do not mention FIIs directly, the international tax regime and rise in exemption limit could further give a boost to India as an investment destination by bringing greater certainty and transparency.

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