Taxpayers Alert: Will New Income Tax Bill 2025 Change Rates Of Long-Term Capital Gains (LTCG)?

The Finance Ministry is likely to table the much-awaited provisions of the new income tax bill 2025 in the Parliament in the coming days. The bill, which was introduced in February this year, aims at simplifying the language and removing redundant provisions. The new bill would replace the existing Income Tax Act, 1961. However, there are reports stating that the new income tax bill could lead to changes in rates of long-term capital gains (LTCG).

Finance Minister Nirmala Sitharaman is reportedly going to table the new income tax bill in Parliament on August 11.

Will the New Income Tax Bill Change LTCG Rates?

There were reports that the much-awaited new income tax bill could push the LTCG tax rate to 18.5% on LLPs from the current 12.5%.

Chartered Accountant, Vivek Khatri, said earlier this week, "The new I-T Bill may raise LTCG tax on LLPs from 12.5% to 18.5% via AMT. Family offices, promoter outfits, & LLP-run investment arms are the target. No deductions. No exemptions."

However, on this matter, the Income Tax Department has issued a clarification.

Through its X post, the IT department said, "There are news articles circulating on various media platforms that the new Income Tax Bill, 2025 proposes to change tax rates on LTCG for certain categories of taxpayers."

"It is clarified that the Income Tax Bill, 2025 aims at language simplification and removal of redundant/obsolete provisions," IT department added, "It does not seek to change any rates of taxes."

"Any ambiguity in this respect shall be duly addressed during the passing of the Bill," the IT department said.

What Is Long Term Capital Gains (LTCG)?

Long term capital gains (LTCG) appears when an investor transfers his or her gains or profits of capital assets such as properties, agricultural land and other securities, after holding it for more than 24 months. Meanwhile, LTCG appears when listed equity shares, equity oriented funds, and units of business trust are held for more than 12 months.

Long-term Capital Gain (LTCG) Tax Rate:

LTCG rate on assets sold before July 23, 2024:

- 10% without indexation on listed equity shares, equity-oriented mutual funds, and other units of Business Trust.

- 20% with indexation on land and building. Also, 20% tax rate levied on other assets.

LTCG Rate On Assets Sold After July 23, 2025:

- 12.5% without indexation on equities, equity-oriented mutual fund and other units.

- 12.5% without indexation which is an option to individuals and HUFs who are selling their land or building. If indexation is chosen, then the LTCG rate is 20%. Without indexation, the rate will be 12.5%. This is the case with other capital assets.

New Income Tax Bill:

The Income-tax Bill, 2025 has been tabled in Parliament on 13th February 2025, marking a significant step toward simplifying the language and structure of the Income Tax Act, 1961.

The simplification exercise was guided by three core principles:

- Textual and structural simplification for improved clarity and coherence.

- No major tax policy changes to ensure continuity and certainty.

- . No modifications of tax rates, preserving predictability for taxpayers.

Under the new income tax bill, it is proposed to reduce the words of the Income Tax Bill to 259,676 words from 512,535 words. While it is proposed to more than halved the number of chapters to 23 from 48. Further, sections will also be brought down to 536 from 819.

What Is New Income Tax Bill 2025?

The Income Tax Bill, 2025 seeks to replace the existing Income Tax Act, 1961 which has seen multiple amendments over the years. It retains basic tax provisions of the existing act and primarily aims to simplify the language and remove redundant provisions. This marks an important step towards Viksit Bharat by enhancing clarity which makes it easier to understand and removes ambiguities, as per the government's statement.

Income Tax Bill 2025 Highlights:

Here are the key Income Tax Bill 2025 Highlights, as per ClearTax website:

- Simplified Structure: Reduced from over 700 sections to 536, with improved layout for better clarity.

- Tax Year: The concept of "Previous Year" and "Assessment Year" is replaced by the unified "Tax Year" (April 1 to March 31).

- Consolidation of TDS provisions: TDS provisions (previously spread across Sections 192 to 194T) are consolidated into Section 393 for easier reference.

- Definition of VDAs: The definition of Virtual Digital Asset is expanded to include any asset with a digital representation of value that relies on a cryptographically secured ledger or similar technology.

- Simplified Language: Redundant provisions are removed, making the bill more taxpayer-friendly.

- Effective Date: The bill is expected to be effective from April 1, 2026, once passed in the Parliament.