Budget 2026: Experts Discuss Simplifying LTCG Rules for Everyday Taxpayers
As more Indians engage in diverse investment avenues, the taxation of long-term capital gains (LTCG) is increasingly relevant for middle-class taxpayers. With rising participation in financial markets and real estate, understanding the complexities of LTCG has become essential. As the Union Budget approaches, tax experts are urging the government to simplify the LTCG framework, aiming to reduce confusion and compliance burdens for taxpayers.
Understanding Long-Term Capital Gains Tax
Long-term capital gains tax applies to profits earned from the sale of capital assets held for a specified minimum period. These assets can include financial instruments such as shares and bonds, as well as physical properties like land and buildings. If an asset is held beyond the required holding period, any profit from its sale is classified as long-term and taxed accordingly. The LTCG tax is calculated based on the difference between the sale price and the asset’s cost, adjusted for allowable expenses.
Recent changes in the Finance Bill 2024 have introduced a base tax rate of 12.5% for many long-term capital gains, with specific rules depending on the asset type. For instance, listed equity shares and equity-oriented mutual funds are taxed at this rate without indexation, with gains up to ₹1.25 lakh in a financial year being exempt. However, the rules differ for land and buildings, where the indexation benefit has been removed, and a uniform tax rate of 12.5% applies. A grandfathering provision allows certain taxpayers to apply indexation for properties acquired before July 23, 2024, ensuring they are not adversely affected by the new regulations.
Challenges in Compliance and Transition
As the new Income-tax Act, 2025, is set to be implemented, experts emphasize the need for a smooth transition. Surabhi Marwah, a tax partner at EY India, highlights the importance of clear guidance and practical rules to facilitate compliance. While recent reforms have laid a solid foundation for streamlining the LTCG regime, further clarity on valuation rules and reporting processes is essential. This would help taxpayers navigate the complexities of LTCG taxation more easily.
The existing framework is still laden with numerous asset classifications and conditions, which can confuse taxpayers. Sundeep Agarwal from Vialto Partners points out that while the previous budget made strides in rationalizing capital gains taxation, the system remains intricate. Simplifying asset categories and loss set-off provisions could significantly enhance compliance and reduce disputes. Experts are advocating for a more standardized approach to asset classification, which would simplify the understanding of LTCG for taxpayers.
Expectations for the Upcoming Budget
As the Budget approaches, financial experts have outlined several expectations for potential reforms. Radhika Viswanathan from Deloitte India notes that the current LTCG rules vary significantly based on asset type and taxpayer profile, complicating compliance. A further rationalization of these rules could improve clarity and ease of understanding. Experts are also calling for greater flexibility in setting off capital losses across different asset classes, which would simplify the overall process for taxpayers.
Additionally, there is a push to expand the scope of the section 87A rebate, which currently applies only to specific long-term capital gains. Broadening this rebate to include all capital gains, regardless of asset type or holding period, could provide meaningful relief to small taxpayers. The focus is not solely on rate cuts but rather on simplifying the entire rulebook, making LTCG taxation more accessible for the average investor.
Addressing Non-Resident Indian Concerns
Non-resident Indians (NRIs) also face unique challenges regarding LTCG compliance. Richa Sawhney from Grant Thornton Bharat points out that current provisions for TDS on property transfers do not apply to NRIs, leading to delays and complications in obtaining lower withholding certificates during property sales. Addressing these issues could streamline the process for NRIs and enhance their investment experience in India.
Overall, the consensus among experts is clear: simplifying the LTCG framework is crucial for fostering a more investor-friendly environment. By reducing the complexity of rules and enhancing clarity, the government can help taxpayers navigate the intricacies of capital gains taxation, ultimately making compliance a more routine aspect of investment rather than a daunting task.
Observer Voice is the one stop site for National, International news, Sports, Editor’s Choice, Art/culture contents, Quotes and much more. We also cover historical contents. Historical contents includes World History, Indian History, and what happened today. The website also covers Entertainment across the India and World.
Follow Us on Twitter, Instagram, Facebook, & LinkedIn
