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INTEGRATED MAINS AND PRELIMS MENTORSHIP (IMPM) KEY (02/08/2024)

INTEGRATED MAINS AND PRELIMS MENTORSHIP (IMPM) 2025 Daily KEY

 
 
Exclusive for Subscribers Daily: How do the Capital Gain Tax (CGT) and the Industrial Production (IIP) matter for the UPSC Exam? Why are subjects like Demographic Dividend and the Lithium Ion Cells important for both preliminary and main exams? Discover more insights in the UPSC Exam Notes for August 2, 2024
 
 

Critical Topics and Their Significance for the UPSC CSE Examination on August 02, 2024

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On discarding indexation for LTCG

For Preliminary Examination: Capital Gain Tax (CGT), Direct Tax, GST

For Mains Examination: GSIII: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment

 

Context:

Finance Minister Nirmala Sitharaman’s announcement in the Union Budget about doing away with indexation for computing long-term capital gains (LTCG) tax has not drawn much enthusiasm. She had proposed that long-term gains on all financial and non-financial assets would now be taxed at 12.5% instead of a tiered structure, albeit abandoning indexation. A memorandum explaining the provisions of the Finance Bill (2024), stated that this was to “ease computation of capital gains for the taxpayer and tax administration”

Read about:

What is Capital gain tax?

Advantages and disadvantages of LTCG

Key takeaways:

Long-Term Capital Gains (LTCG) tax is a tax on the profit made from the sale of an asset that has been held for a longer period. In many jurisdictions, including India and the US, assets such as stocks, bonds, real estate, or mutual funds are subject to LTCG tax if sold after holding them for a specified period.

Key Points About LTCG Tax:

  • Holding Period: The period required to classify a gain as long-term varies by asset type and country. For example, in India, the holding period is typically 12 months for stocks and mutual funds, while it’s 24 months for real estate.

  • Tax Rate: LTCG is often taxed at a lower rate compared to Short-Term Capital Gains (STCG). The specific rate can differ depending on the asset and the country’s tax laws. For instance, in India, LTCG on equity investments exceeding ₹1 lakh is taxed at 10% without the benefit of indexation.

  • Indexation Benefit: In some countries, like India, you can adjust the purchase price of an asset for inflation using the Cost Inflation Index (CII) to reduce taxable gains. This is not applicable to equities but is available for real estate.

  • Exemptions: There are often exemptions or deductions available for certain types of LTCG. For instance, in India, LTCG from the sale of a residential property might be exempt under Section 54 if the proceeds are reinvested in another property.

  • Reporting: LTCG must be reported in the income tax return for the relevant financial year, and proper documentation of purchase and sale transactions is necessary to determine the gain accurately.

Also read:

 What are the types of Capital gain taxes?

What is the Cost Inflation Index?

 

Follow Up Question

1.Which of the following statements about capital gains tax in India is/are correct?

  1. Short-term capital gains on equity shares are taxed at a flat rate of 15%.
  2. Long-term capital gains on property are exempt from tax if invested in specified bonds.
  3. The holding period for conside

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