Capital Gain Tax Valuation

Navigating the complexities of capital gains tax is crucial for every investor and property owner. With recent changes introduced by the Union Budget 2024 and 2025, understanding your tax obligations and optimizing your financial strategies has become more vital than ever. As expert valuers, we provide the precise assessments needed to ensure compliance and maximize your returns.

Understanding Capital Gains Tax: A Comprehensive Overview

Capital gains tax is levied on the profit, or 'gain', you make from selling a 'capital asset'. According to the Income Tax Act, a capital asset can include a wide range of investments such as property, stocks, bonds, gold, and mutual funds. These gains are categorized based on how long you held the asset:

• Short-Term Capital Gains (STCG): These arise from assets held for a relatively shorter period. For listed equity shares and equity-oriented mutual funds, this period is less than 12 months. For immovable property (land, buildings), debt mutual funds, unlisted shares, gold, and bonds, it's less than 24 months.

• Long-Term Capital Gains (LTCG): These occur from assets held for a longer duration. For listed equity shares and equity-oriented mutual funds, this means holding them for 12 months or more. For immovable property, unlisted shares, gold, bonds, and debt mutual funds, the holding period is 24 months or more.

Key Updates from Union Budget 2024 and 2025 and Their Impact

The Finance (No. 2) Act, 2024, brought significant changes to capital gains tax effective from July 23, 2024. While the Union Budget 2025 did not introduce further specific alterations to these rules, the existing framework for FY 2025-26 (AY 2026-27) continues to apply. These reforms primarily focus on simplifying holding periods, rationalizing tax rates, and altering indexation benefits.

Here’s a breakdown of the key changes:

• Simplified Holding Periods: The previous three holding periods have been streamlined to just two.

  • 12 months: Applies to all listed securities, including listed equity shares, equity-oriented mutual funds, and units of business trusts (like REITs and InVITs), where the holding period was previously 36 months for some.

  • 24 months: Applies to all other assets, such as immovable property, unlisted shares, gold, and most debt instruments.

• Rationalized Tax Rates:

  • STCG: The tax rate for STT-paid listed equity and equity-oriented mutual funds (under Section 111A) has increased from 15% to 20%. Other STCGs are taxed at applicable slab rates.

  • LTCG: A uniform 12.5% tax rate has been established for most long-term capital gains, simplifying previous varying rates. For listed shares and equity mutual funds (Section 112A), the 12.5% rate applies to gains exceeding ₹1.25 lakh.

• The Critical Change: Indexation Removed:

  • For most assets, the indexation benefit has been largely eliminated for transfers on or after July 23, 2024. This means capital gain is generally calculated as sale price minus original cost, which can significantly increase taxable gains for assets held for many years due to inflation.

  • Special Option for Land & Building: For immovable properties (land and/or buildings) acquired before July 23, 2024, and sold on or after this date, resident individuals and HUFs have a crucial choice:

    • Tax at 12.5% without indexation, OR

    • Tax at 20% with indexation benefit. This option allows taxpayers to choose the method that results in lower tax liability, which requires careful calculation of both scenarios.

• Increased LTCG Exemption Limit: The exemption limit for LTCG on listed equity shares and equity-oriented mutual funds (under Section 112A) has been raised from ₹1 lakh to ₹1.25 lakh.

• Share Buyback Taxation: Effective October 1, 2024, proceeds from share buybacks are now taxed as dividend income in the hands of shareholders at their applicable slab rates, shifting the tax burden from the company.

For Non-Resident Indians (NRIs), these new rules generally apply, though Tax Deducted at Source (TDS) provisions and potential Double Taxation Avoidance Agreement (DTAA) benefits need careful consideration.

Navigating Tax-Saving Opportunities: Exemptions and Rollover Benefits

Despite the new tax structure, various capital gains tax exemptions and rollover benefits continue to be available. These can significantly reduce your tax burden:

• Section 54: Exempts LTCG from the sale of a residential property if reinvested in another residential property in India within a specified period (1 year before or 2 years after sale, or construction within 3 years). A cap of ₹10 crore applies to this deduction.

• Section 54F: Allows exemption for LTCG from the sale of any asset other than a residential property if the proceeds are reinvested in a new residential property in India, subject to similar timelines and conditions (e.g., not owning more than one residential house at the time of transfer, other than the new one). This also has a ₹10 crore cap.

• Section 54EC: Exempts capital gains (up to ₹50 lakh per financial year) if invested in specified bonds (like NHAI or REC bonds) within six months of the asset sale. These bonds have a 5-year lock-in period.

• Section 54GB: Offers the option to reinvest LTCG from the sale of residential property into shares of eligible manufacturing companies.

• Capital Gain Account Scheme (CGAS): If you can't reinvest the gains immediately within the specified timeframe, you can deposit the amount into a CGAS account to claim exemption, provided the amount is utilized within three years.

• Tax Loss Harvesting: Losses from the sale of certain assets (like mutual funds or shares) can be used to offset capital gains from other assets, minimizing your taxable capital gains.

It is crucial to understand and strictly adhere to the specific conditions and monetary caps associated with each exemption to claim the benefits effectively.

Why Professional Valuation is Essential for Capital Gains Tax

The revised capital gains tax regime, particularly with the removal of indexation benefits and the introduction of choices for property taxation, has added new layers of complexity for investors. Accurate valuation is no longer just a good practice—it's essential for optimal tax planning and compliance.

Our expertise as professional valuers is invaluable in this evolving tax landscape:

• Precise Capital Gains Calculation: We ensure that your capital gains are calculated accurately, taking into account all relevant costs, expenses, and holding periods under the new rules.

• Optimizing Property Taxation: For properties acquired before July 23, 2024, the choice between 12.5% without indexation and 20% with indexation is critical. We can perform detailed calculations to determine the most beneficial option for you, potentially saving significant tax amounts.

• Comprehensive Asset Valuation: We provide Technical Valuation services covering a wide range of assets, including Land, Buildings, Plant & Machinery, and other specialized industrial assets. This comprehensive approach ensures that the "cost of acquisition" used in your tax calculations is robust and defensible. Our highly skilled team of engineers, architects, and valuation experts, with extensive experience across diverse industries, can provide precise valuations.

• Maximizing Exemptions: We help you identify and strategically utilize available tax-saving exemptions and rollover benefits, ensuring you meet all specified conditions and deadlines.

• Ensuring Compliance: Our valuations are conducted in accordance with internationally recognized valuation standards, and our experts are well-versed in the latest regulatory requirements, helping you maintain accurate records and avoid discrepancies during tax assessments.

Partner with Us for Smart Tax Planning

With decades of experience and a strong operational presence across India, Rane Engineers & Surveyors Pvt. Ltd. is a trusted name in valuation services. Whether you are selling property, shares, or other assets, our expert valuation services provide clarity and strategic insights to minimize your tax liabilities and enhance your financial planning.

Don't leave your capital gains taxation to chance. Contact us today to schedule a consultation and ensure your assets are valued accurately for optimal tax outcomes.