Here’s what taxpayers should keep in mind amid changes in capital gains tax rates. Read on to know its impact on reporting transactions
A few taxpayers are likely to have missed the date on which the newly proposed rates for tax on capital gains will come into effect. It is from July 23, 2024, and this has raised concerns among taxpayers and tax preparers, after the recent Union Budget 2024-25 presented in Parliament last week.
Experts say the proposed changes in the Finance Bill in rates and amended definitions of ‘short-term capital asset’ will significantly impact tax computations and reporting for the fiscal year 2024-25, relevant to the assessment year 2025-26.
Dev Kumar Kothari, chartered accountant, shared in a blog post that the crux of the matter lies in the complexity arising from the differentiation in tax rates for capital gains based on the date of asset transfer.
He said various forms, orders, and computation formats would need to be adjusted to accommodate the new provisions. “Different period of holding will also be applicable while computing capital gains for FY 2024-25 relevant to AY 2025-26. This will have an impact on reporting by various concerned authorities and parties like Depositories (CDSL and NSDL),” he added.
The cut-off date of July 23, 2024 is difficult to keep record for assessors, tax document preparers, even if tax documents are computerised, he said. According to his post that appeared on taxmanagementindia.com, various forms of income tax returns (ITRs), orders, and computation formats will need to be adjusted to calculate the tax payable for capital gains. This is because rate of tax will be different for transfers which took place before and after July 23, 2024, for calculating both short-term and long-term capital gains.
The LTCG tax on the sale of listed equity shares and equity-oriented mutual funds has been raised from 10 per cent to 12.5 per cent, while on other assets it has been reduced from 20 per cent to 12.5 per cent, but indexation has been removed. STCG from the sale of listed equity shares and equity-oriented mutual funds have been hiked from 15 per cent to 20 per cent.
Further, the proposed regulations will impact reporting by authorities and entities, such as depositories (CDSL and NSDL). Notably, the changes will also affect the computation of advance tax instalments from September 15, 2024 for the FY 2024-25, and interest payable due to the delay in advance tax payment.
As such, taxpayers should exercise caution in documenting the date of transfer of capital assets with evidence, as disputes about this dates can arise later. Another factor to note is with specific reference to security transactions, the usual practice of considering the date of the contract as the transfer date have to be changed, considering that delivery usually takes place on a T+1 basis. Thus, establishing the actual transfer date for various capital assets will be crucial in light of the capital gains tax calculation changes.