Capital Gains Tax Budget 2025:Capital gains tax is a major part of India’s tax system. It is imposed on anything considered a capital asset, including real estate, stocks, mutual funds, and bonds. When someone sells these assets, they either make a profit or a loss. If there is a profit, tax needs to be paid on it. The tax rate depends on how long the asset was held before being sold.
For stocks and other listed securities, if someone sells them before holding them for 12 months, the profit is taxed as short-term capital gains. If they sell them after holding for more than 12 months, it is considered long-term capital gains. Real estate has different rules. If a property is sold within 24 months, it falls under short-term capital gains, and if sold after 24 months, it is taxed as long-term capital gains.
Recent changes in capital gains tax have affected investors significantly. In the last budget, the short-term capital gains tax on listed securities was increased from 15 percent to 20 percent. The government justified this by saying that the lower tax rate was mainly benefiting high-net-worth individuals.
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This increase has made investing in the stock market less attractive, especially for small investors. There is now growing concern that this could reduce domestic market participation, especially since foreign investors have been withdrawing from Indian markets.
According to Business Today, the long-term capital gains tax rate on all financial and non-financial assets was reduced to 12.5 percent. Earlier, sellers did not have to pay tax on profits up to Rs 1 lakh, but now the limit has been increased to Rs 1.25 lakh. The reduction in tax was meant to encourage long-term investments, but at the same time, the government removed the indexation benefit. This means that taxpayers can no longer adjust their cost of purchase to account for inflation, which increases the actual amount of tax they must pay.
The removal of indexation benefits has especially affected middle-class taxpayers, who rely on homeownership to save and build wealth. In India, owning a home is not just about financial security; it holds emotional and cultural value.
Many experts are now urging the government to bring back indexation benefits, particularly for real estate, gold, and other unlisted assets. Since the real estate sector supports multiple industries and creates jobs, restoring these benefits could also help boost the economy.
There is also a need to adjust the capital gains exemption limits. Currently, when someone reinvests their capital gains in a new property, they can claim an exemption. With rising property prices and inflation, the current exemption limits are too low.
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Another issue is the lack of clarity on whether the Rs 10 crore limit under sections 54 and 54F of the Income Tax Act applies separately or together. This confusion makes it difficult for investors to plan their finances.
The minimum holding period required for claiming an exemption on reinvestment also needs to be reconsidered. Right now, an asset must be held for at least two years to qualify as a long-term capital asset, but for claiming exemption under sections 54 and 54F, the new asset must be held for three years. Many taxpayers believe this rule should be simplified and made uniform by reducing the holding period for exemptions to two years.
Taxation of withdrawals from the Capital Gains Account Scheme (CGAS) is another issue as well. When taxpayers sell a long-term asset and do not immediately reinvest the money, they are required to deposit the unutilized amount into CGAS to claim a tax exemption.
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There is no clear rule on when the tax should be paid if the money is withdrawn before the required three-year period. Some banks insist on a tax clearance certificate, which is difficult to obtain. A clarification from the government would make things much easier for taxpayers and avoid unnecessary complications.
