Comparative Study
Capital Gains Taxation
ITA 1961 vs ITA 2025
A Comprehensive Analysis for Tax Professionals & CA Students
Effective from 1 April 2026 | Tax Year 2026–27 Onwards
Income Tax Act 1961
Income Tax Act 2025
Finance Act 2024 Amendments
Finance Act 2026
Presentation Agenda
OVERVIEW OF TOPICS COVERED
Part A – Foundations
- Legislative Background & Need for Reform
- Concept of Capital Asset
- Definition of Transfer
- Charge of Capital Gains (Section 45 / Section 67)
- Computation Framework
- Holding Period Classification
Part B – Rates & Mechanics
- STCG & LTCG Tax Rates (All Asset Classes)
- Indexation – Removal & Grandfathering
- Cost of Acquisition: Fair Market Value
- Set-Off & Carry Forward of Losses
- Exemptions: Section 54 Series vs Section 85–88
- Special Categories: NRI, Slump Sale, ESOP
Part C – Structural Reforms
- Section Renumbering Master Table
- Terminology Changes (AY → Tax Year)
- Procedural Simplifications
- Key Substantive Changes
Part D – Practice Insights
- Practical Illustrations & Case Studies
- Tax Planning Strategies
- Transition Issues & Pending Matters
- Conclusion & Key Takeaways
Part A
Legislative Background
Why was a new Act needed after 64 years?
Legislative Background & Context
NEED FOR REFORM
1961
Income Tax Act, 1961 Enacted
Replaced the 1922 Act. Governed Indian income tax for over six decades with 298 sections and numerous schedules.
2024
Finance (No. 2) Act, 2024 – Capital Gains Overhaul
Sweeping changes to STCG/LTCG rates, holding periods, removal of indexation, STT linkage — effective 23 July 2024.
2025
Income Tax Act, 2025 Enacted
Re-codification: 4,000+ amendments to the 1961 Act consolidated. Simplified language, sequential section numbering, no alphabetical suffixes. Effective 1 April 2026.
2026
Finance Act, 2026 & New Rules
Income-tax Rules 2026 replace Rules 1962. New forms (Form 145/146 replace 15CA/15CB). Tax Year 2026-27 is the first year under the new Act.
⚠️ Critical for Practitioners: The ITA 2025 is primarily a re-codification. However, it incorporates the Finance Act 2024 capital gains changes as substantive law. Courts will see both Acts cited in ongoing proceedings.
Definition of Capital Asset
SECTION 2(14) [ITA 1961] vs SECTION 2 / SCHEDULE [ITA 2025]
ITA 1961 – Section 2(14)
- Any property held by an assessee
- Includes rights in/over property
- Exclusions: Stock-in-trade, personal use movables (excluding jewellery/drawings/sculptures), rural agricultural land, 6½% Gold Bonds, Special Bearer Bonds, Gold Deposit Bonds
- Virtual digital assets (VDAs) – added vide Finance Act 2022
ITA 2025 – Reorganised
- Core definition retained; language simplified
- Clearer guidance on types of capital assets in dedicated schedule
- VDAs explicitly included; taxed at special rates
- Agricultural land tests (urban vs rural) retained with updated population/distance criteria
- Section 47 exceptions (e.g., sick company transfer, stock exchange demutualisation) removed — now standardised
📌 Substantive Change: The removal of Section 47 exceptions for sick industrial undertakings and stock exchange demutualisation is a noteworthy departure from the 1961 Act position.
Charge of Capital Gains
SECTION 45 [ITA 1961] → SECTION 67 [ITA 2025]
Section 45, ITA 1961
- Profit/gain from transfer of capital asset → chargeable to income tax
- Deemed as income of year of transfer
- Sub-sections 45(1) to 45(5B): Insurance, compulsory acquisition, firm reconstitution, depreciable assets, etc.
- 45(4): Reconstitution of firms – attributed gains
Section 67, ITA 2025
- Equivalent to Section 45 – core charging provision
- Same concept: profit on transfer of capital asset = income in year of transfer
- All sub-clauses of Section 45 preserved under reorganised sub-sections
- Language simplified; cross-references reduced
✅ No Substantive Change: The charging mechanism under Section 67 (ITA 2025) mirrors Section 45 (ITA 1961) in all material respects. Only the section number changes for filings from Tax Year 2026-27.
Note: For Tax Year 2025-26 (ITR filed July 2026), old section numbers still apply in the return.
Holding Period Classification
SHORT-TERM vs LONG-TERM — PRE & POST FINANCE ACT 2024
| Asset Class | Pre 23-Jul-2024 (ITA 1961) | Post 23-Jul-2024 / ITA 2025 |
|---|
| Listed Equity Shares (STT paid) | LTCG if >12 months | LTCG if >12 months ✔ (No change) |
| Equity-Oriented Mutual Funds / Business Trust Units | LTCG if >12 months | LTCG if >12 months ✔ (No change) |
| Immovable Property (Land/Building) | LTCG if >24 months | LTCG if >24 months ✔ (No change) |
| Unlisted Shares | LTCG if >24 months | LTCG if >24 months ✔ (No change) |
| Debt MFs / Gold ETFs / Hybrid Funds / REITs / InvITs / AIF Units (Listed) | LTCG if >36 months (debt); 12 months (listed) | Rationalised: 24 months uniform for most; check specific product category |
| Other Assets (Jewellery, Patents, etc.) | LTCG if >36 months | LTCG if >24 months ✔ (Rationalised) |
| All Capital Assets (General Proposal) | Varied: 12 / 24 / 36 months | Standardised: 12 months (listed); 24 months (all others) |
✅ Key Rationalisation: Finance Act 2024 eliminated the 36-month holding period category. Now only two thresholds exist: 12 months (listed securities) and 24 months (all other assets). Incorporated into ITA 2025.
Part B
Tax Rates & Computation
STCG · LTCG · Indexation · Set-Off · Exemptions
Short-Term Capital Gains (STCG) Tax Rates
SECTION 111A [ITA 1961] → EQUIVALENT IN ITA 2025
| Asset Type | ITA 1961 (Pre 23-Jul-24) | ITA 2025 / Post 23-Jul-24 |
|---|
| Listed Equity Shares (STT paid) — Sec 111A | 15% + surcharge + cess | 20% + surcharge + cess ↑ |
| Equity-Oriented Mutual Funds / Business Trust (STT paid) | 15% | 20% ↑ |
| Other Assets (Debt MF, Property, Unlisted Shares, Gold) | Applicable slab rates | Applicable slab rates (No change) |
| Virtual Digital Assets (VDA / Crypto) | 30% (flat, no deductions except CoA) | 30% (retained) |
| Non-Residents on listed securities | 15% (Section 115AD) | 20% ↑ |
⚠️ Significant Change: STCG rate on listed equity/equity MFs increased from 15% to 20% effective 23 July 2024 — one of the most impactful changes for active traders and FIIs.
Surcharge capped at 15% on STCG u/s 111A. Health & Education Cess: 4% on tax + surcharge.
Long-Term Capital Gains (LTCG) Tax Rates
SECTION 112 & 112A [ITA 1961] → ITA 2025 EQUIVALENTS
| Asset Type | ITA 1961 (Pre 23-Jul-24) | ITA 2025 / Post 23-Jul-24 |
|---|
| Listed Equity / Equity MF / Business Trust (STT paid) — Sec 112A | 10% on gains >₹1 lakh (no indexation) | 12.5% on gains >₹1.25 lakh ↑ |
| Immovable Property (Land/Building) | 20% with indexation | 12.5% without indexation
OR 20% with indexation (if acquired before 23-Jul-2024 – grandfathering) |
| Unlisted Shares (Resident) | 20% with indexation | 12.5% without indexation |
| Bonds, Debentures | 10% (listed) / 20% with indexation (unlisted) | 12.5% uniform (listed/unlisted) |
| Gold / Jewellery / Other Assets | 20% with indexation | 12.5% without indexation |
| Debt MFs (listed, meeting conditions) | 20% with indexation (pre-Apr 2023 purchase); Slab rates for later | 12.5% LTCG (if listed & conditions met) |
| Non-Residents – Unlisted Securities (Sec 115E/AD) | 10% (115E) / 10% (115AD) without indexation | 12.5% ↑ |
✅ Rationalisation: A uniform 12.5% LTCG rate across most asset classes replaces the earlier multi-rate structure (10%/20%). Fewer slabs = simpler planning.
Indexation — Removal & Grandfathering
ONE OF THE MOST CONTROVERSIAL CHANGES
Position Under ITA 1961 (Pre 23-Jul-2024)
- Cost Inflation Index (CII) issued annually by CBDT
- Indexed Cost = Actual Cost × (CII of Sale Year / CII of Purchase Year)
- Available for most LTCG assets (property, gold, unlisted shares, bonds)
- Significantly reduced taxable LTCG, especially for long-held property
- LTCG rate @ 20% with indexation
Indexed Cost = Cost × (CIISale / CIIPurchase)
Position Under ITA 2025 / Post 23-Jul-2024
- Indexation abolished for all assets transferred on/after 23 July 2024
- Flat 12.5% LTCG without indexation
- Grandfathering (Transitional Relief): Resident Individuals & HUFs for land or building acquired BEFORE 23-Jul-2024 may opt for 20% with indexation if that results in lower tax
- Taxpayer must compute both and choose the beneficial option
- No grandfathering for other assets (gold, unlisted shares, bonds)
⚠️ Planning Note: For properties purchased long ago, 20% with indexation may still be beneficial. For recent purchases, 12.5% without indexation is likely lower. Run both calculations for AY 2027-28 onwards (Tax Year 2026-27).
Computation of Capital Gains
FRAMEWORK COMPARISON
ITA 1961 – Computation Steps
Full Value of Consideration (FVC)
(–) Expenditure on Transfer
(–) Cost of Acquisition (CoA)
(–) Cost of Improvement (CoI)
= Capital Gain
(–) Exemptions u/s 54–54GB
= Taxable Capital Gain
- FVC: Actual or deemed (Sec 50C for property)
- CoA: Actual purchase price; FMV on 1 Feb 2018 for assets held before that date (Sec 55(2))
- Indexed CoA available (LTCG)
ITA 2025 – Computation Steps (Retained)
Full Value of Consideration (FVC)
(–) Expenditure on Transfer
(–) Cost of Acquisition (CoA)
(–) Cost of Improvement (CoI)
= Capital Gain
(–) Exemptions u/s 85–88
= Taxable Capital Gain
- Same framework — only section numbers change
- Indexed CoA not applicable for transfers post 23-Jul-2024 (except grandfathered property)
- FMV grandfathering (1 Feb 2018) retained for listed equities
Deeming Provisions – Full Value of Consideration
SECTION 50C / 50CA / 56(2)(x) [ITA 1961] → ITA 2025
| Provision | ITA 1961 Section | ITA 2025 Equivalent | Substance |
|---|
| Property below stamp duty value | Sec 50C | Retained (renumbered) | Stamp duty value = FVC if > actual consideration; 10% safe harbour |
| Transfer of unlisted shares below FMV | Sec 50CA | Retained (renumbered) | FMV used as deemed sale consideration |
| Inadequate consideration – Buyer's angle | Sec 56(2)(x) | Retained (renumbered) | Difference taxable as "other income" in buyer's hands |
| FMV – Cost on inheritance / gift | Sec 49(1) / 55(2) | Retained (renumbered) | Previous owner's cost adopted; FMV on 1-Feb-2018 for equity (grandfathering) |
ℹ️ All deeming provisions carried forward into ITA 2025 without substantive change. Only section numbers differ.
Set-Off & Carry Forward of Capital Losses
SECTIONS 70–74 [ITA 1961] → ITA 2025
ITA 1961 – Rules
- STCL can be set off against STCG and LTCG (same year)
- LTCL can only be set off against LTCG (same year); cannot set off against STCG
- Carry forward: Up to 8 assessment years
- Return must be filed within due date to carry forward
- Loss from specified assets (VDA) can only be set off against gains from same VDA type
ITA 2025 – Rules (Retained)
- Same set-off hierarchy maintained
- STCL → STCG + LTCG (intra-year)
- LTCL → LTCG only (intra-year)
- Carry forward: Up to 8 tax years
- VDA loss ring-fencing retained
- Return filing within due date remains condition for carry forward
✅ No change in loss set-off rules. "Assessment Year" terminology replaced by "Tax Year" throughout ITA 2025.
Allowed in Same Year
STCL ↔ STCG ✔ | STCL ↔ LTCG ✔ | LTCL ↔ LTCG ✔ | LTCL ↔ STCG ✘
Carry Forward (8 Years)
STCL c/f → STCG + LTCG ✔ | LTCL c/f → LTCG only ✔
Reinvestment Exemptions
SECTION 54 SERIES [ITA 1961] → SECTIONS 85–88 [ITA 2025]
| Exemption | ITA 1961 | ITA 2025 | Condition / Cap |
|---|
| Sale of Residential House → Purchase of Residential House | Sec 54 | Sec 85 | 1 year before / 2 years after; cap: ₹10 cr |
| Sale of Industrial Land/Building → New Ind. Asset | Sec 54D | Sec 85 (equivalent) | Compulsory acquisition; 3 years to reinvest |
| Sale of Any LTCA → NHAI/REC Bonds | Sec 54EC | Sec 86 | 6 months; max ₹50 lakh per year; 5-yr lock-in |
| Sale of Any LTCA (except house) → Residential House | Sec 54F | Sec 87 | Net consideration invested; cap: ₹10 cr; individual / HUF only |
| LTCG → Investment in specified startup equity | Sec 54GB | Sec 88 | Within 6 months; fund used within 1 year; conditions apply |
| LTCG → Infrastructure Bonds | Sec 54EC | Sec 86 | 6 months; specified bonds only (NHAI, REC) |
ℹ️ Cap of ₹10 Crore: Introduced via Finance Act 2023 for Sec 54 and 54F exemptions — limits on luxury reinvestment retained in ITA 2025. Capital Gains Account Scheme (CGAS) also retained for parking unutilised proceeds.
Part B Continued
Special Asset Classes & Categories
NRI · Slump Sale · ESOP · VDA · Real Estate
Special Categories — Comparative Treatment
KEY ASSET-SPECIFIC PROVISIONS
| Category | ITA 1961 | ITA 2025 | Rate / Change |
|---|
| NRI – Specified Foreign Equity (Sec 115E) | 115E: LTCG @ 10% | Renumbered; rate: 12.5% | 12.5% ↑ |
| Foreign Institutional Investors (FII/FPI) – Sec 115AD | STCG 15%; LTCG 10% | STCG 20%; LTCG 12.5% | Revised upward |
| Slump Sale (Sec 50B) | STCG/LTCG based on holding; net worth = cost | Same treatment retained; renumbered | No change |
| Employee Stock Options (ESOPs) – Perquisite + Capital Gains | Perquisite on allotment; CG on sale | Same dual-tax treatment retained | No change |
| Real Estate Investment Trusts (REITs) / InvITs | Varied; STCG 15%; LTCG 10%/20% | STCG 20%; LTCG 12.5% (aligned) | Revised |
| Virtual Digital Assets (Crypto / NFTs) | 30% flat + 1% TDS; no set-off | 30% flat retained; ring-fencing retained | No change |
| Bonus Stripping / Dividend Stripping (Sec 94) | Anti-avoidance — loss disallowed | Retained (renumbered) | No change |
| Compulsory Acquisition (Sec 45(5)) | Tax in year of compensation receipt | Retained in Section 67 equivalent | No change |
Part C
Structural Reforms
Section Renumbering · Terminology · Simplification
Master Section Mapping — Capital Gains
ITA 1961 SECTION → ITA 2025 EQUIVALENT
| Subject Matter | ITA 1961 Section | ITA 2025 Section |
|---|
| Charge of Capital Gains | 45 | 67 |
| Definition: Capital Asset | 2(14) | Schedule / Clause 2 |
| Definition: Transfer | 2(47) | Reorganised |
| Transactions not treated as transfer (Sec 47) | 47 | Reorganised (some removed) |
| Cost of Acquisition (FMV rules) | 55 / 55(2) | Renumbered |
| Deemed Sale Price – Property (Stamp Duty) | 50C | Renumbered |
| Depreciable Assets Capital Gains | 50 / 50A | Renumbered |
| LTCG Exemption – Residential House | 54 | 85 |
| LTCG Exemption – Any Asset → House | 54F | 87 |
| LTCG Exemption – Infrastructure Bonds | 54EC | 86 |
| LTCG Exemption – Startup Equity | 54GB | 88 |
| Tax on STCG – Listed Equity | 111A | Renumbered |
| Tax on LTCG – All Assets (General) | 112 | Renumbered |
| Tax on LTCG – Listed Equity / Equity MF | 112A | Renumbered |
| NRI Capital Gains | 115E / 115F | Renumbered |
| FII/FPI Capital Gains | 115AD | Renumbered |
| Slump Sale | 50B | Renumbered |
| Capital Gains Account Scheme | 54 proviso | Retained |
| Loss Set-Off (Capital) | 70 / 71 / 74 | Renumbered |
| Return of Income | 139 | 263 |
| Charge of Income Tax | 4 | Renumbered |
Key Terminology & Structural Changes
ITA 2025 — LANGUAGE & FRAMEWORK SIMPLIFICATIONS
Terminology Replaced
- "Previous Year" → Tax Year
- "Assessment Year" → Tax Year (next year reference)
- "Assessee" → Taxpayer (in many contexts)
- "Previous Year 2025-26" → Tax Year 2025-26
Structural Reforms
- Alphabetical section suffixes (80C, 80CCC) eliminated
- Single provision per concept (no multi-clause cross-references)
- Income-tax Rules 1962 → Income-tax Rules 2026
- Form 15CA/15CB → Form 145/146
- Updated return window extended: 24 months → 48 months
Substantive Additions
- LTCG exempt threshold: ₹1 lakh → ₹1.25 lakh (equity)
- Indexation abolished for post-Jul 2024 transfers
- Sec 47 exceptions for sick companies / demutualisation removed
- Rates set by Finance Acts — not embedded in the Act itself
📌 Transition Note for Practitioners: ITR for Tax Year 2025-26 (filed July 2026) still uses old section numbers. New section numbers apply from Tax Year 2026-27 onwards (ITR filed July 2027). Both sets of numbers will appear before tribunals simultaneously in 2026-27.
Part D
Tax Planning & Transition Insights
Practical guidance for CA practitioners
Key Takeaways & Planning Points
SUMMARY FOR CA PRACTITIONERS
What Has Changed (Substantively)
- STCG rate: 15% → 20% on listed equity / equity MF
- LTCG rate: 10% → 12.5% on equity assets; uniform 12.5% for all LTCA
- Indexation: Abolished (post 23-Jul-2024); grandfathering only for land/building (resident individual/HUF)
- Holding period: 36-month tier eliminated; now 12M / 24M only
- LTCG exemption threshold (equity): ₹1 lakh → ₹1.25 lakh
- Sec 47 exceptions: Some removed (demutualisation, sick company)
- ITR-U window: Extended to 48 months
What Remains the Same (Conceptually)
- Definition of capital asset / transfer
- Charging mechanism (Section 45 → Section 67)
- Computation formula (FVC – CoA – CoI)
- Set-off & carry forward rules (8 years)
- Reinvestment exemptions (54 → 85–88 series)
- Deeming provisions (50C, 50CA, 56(2)(x))
- VDA taxation (30% flat)
- CGAS (Capital Gains Account Scheme)
- Loss ring-fencing for VDAs
✅ Planning Strategy: For old properties, always compute tax both ways — 12.5% without indexation vs. 20% with indexation. Choose lower tax option where grandfathering applies.
⚠️ Transition Risk: Build a dual-section reference for all client advices until 2027. Courts and ITAT will cite ITA 1961 and ITA 2025 sections simultaneously in ongoing matters.