Long-term capital gains are earnings generated by selling assets or investments held for more than a year.
Reetu | Mar 12, 2025 |
New LTCG Tax Rate for FIIs w.e.f. April 1, 2025
Long-term capital gains are earnings generated by selling assets or investments held for more than a year. The actual holding period varies based on the type of asset:
Equities and mutual funds: Held for more than a year.
Real estate and gold: Held for more than 24 months.
Other Assets: Specific laws apply depending on the asset type and jurisdiction.
Residents
Equity shares and equity-oriented mutual funds: LTCG exceeding Rs.1.25 lakh is taxed at 12.5% without indexation for sales made on or after July 23, 2024.
Real estate: LTCG is taxed at 20% with indexation on sales made before July 23, 2024. For purchases on or after July 23, 2024, the rate is 12.5% without indexation, with the option of choosing between the two rates for properties purchased prior to July 23, 2024.
Other Assets: Assets held for more than the prescribed period are generally taxed at 12.5% without indexation (for example, debt instruments for 24 months).
Non-Residents (NRIs)
General LTCG: It is taxed at 20% with indexation benefits.
Specific Assets: For properties purchased before July 23, 2024, LTCG is taxed at 20% with indexation or 12.5% without it.
TDS: A 20% withholding tax (TDS) is levied on LTCG for NRIs.
Foreign Institutional Investors (FIIs) in India are taxed under Section 115AD of the Income Tax Act of 1961. This section defines the tax rates that apply to income earned from securities and capital gains derived from their transfer.
Income from securities is taxed at 20% for FIIs and 10% for specific funds (such as certain Alternative Investment Funds).
Equity shares or units of equity-oriented funds are taxed at 15% if the Securities Transaction Tax (STT) is paid. Other securities are taxed at 30 percent.
Generally, FIIs are taxed at 10% without indexation, with the exception of certain securities where LTCG may be exempt if STT is paid.
The Union Budget 2025 made minimal changes to the capital gains tax regime while leaving tax rates and holding periods constant. For the assessment year 2026-27, these laws will apply to a variety of assets, including shares, mutual funds, bonds, debentures, unlisted shares, real estate, and other financial instruments.
Notably, the new long-term capital gains (LTCG) tax rate for Foreign Institutional Investors (FIIs) will not begin on April 1, 2025, but rather on April 1, 2026, as specified in the Finance Bill 2025. This change boosts the LTCG tax rate on certain securities from 10% to 12.5%, putting it in line with the rates charged to residents for similar assets.
“It is proposed to amend the provisions of section 115AD to provide that income-tax on the income by way of long-term capital gains on transfer of securities (other than units referred to in section 115AB) not referred to in section 112A, if any, included in the total income, shall be calculated at the rate of 12.5 per cent,” according to the bill.
“These amendments will take effect from the April 1, 2026, and shall accordingly, apply in relation to the assessment year 2026-27 and following assessment years,” it further stated.
Effective April 1, 2026, the LTCG tax rate for FIIs on all securities, including those not covered by Section 112A, will be raised to 12.5%. This change tries to equalise taxation for residents and non-residents.
The new rate will take effect in the assessment year 2026-27, establishing a consistent method to taxing long-term capital gains (LTCG) across various types of securities.
Current rate (until March 31, 2026): 10% on securities not protected by Section 112A.
Future rate (starting April 1, 2026): 12.5% for all securities, in line with resident rates.
The new Long-Term Capital Gains (LTCG) tax rate, which will take effect in the assessment year 2026-27, is intended to create a consistent tax structure across all types of securities. This means that whether investors are dealing with stocks, bonds, or other types of investments, they will face the same LTCG tax treatment.
This effort aims to:
Increase Fairness: By applying a uniform rate to all investors, both domestic and foreign, it eliminates any special treatment that may have occurred under the old tax structure.
Encourage Investment: A more transparent and predictable tax structure may attract more investors to the market since they will have a better grasp of their tax liabilities.
Improve Compliance: Because a single rate is easier to maintain and calculate than a complicated, variable structure, streamlining the tax system may result in higher investor compliance.
Overall, this reform is part of a bigger drive in India to foster greater transparency and investment.
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