New capital gain rules from April 1 — Cap on house sale, tax hike on market-linked debentures and more

April 1 marks the beginning of a new financial year and it is always significant from a personal finance point of view as most of the Budget proposals take into effect from this day. While Budget 2023 announced several changes that relate to common people, one of these is the change in capital gain structure. It's important to take a look at these to avoid any problems while dealing with them.

Converting physical gold to Electronic Gold Receipt and vice versa will not be considered a transfer and not attract any capital gains from April 1, 2023. This would promote investments in the electronic equivalent of gold.

Electronic Gold Receipts can be defined as depository gold receipts that can be traded on the stock exchanges. They are similar to stocks and are traded and held in Demat accounts, just like them. Under this form of gold, the trading exchange holds the underlying value of the receipt of physical gold in a vault.

From April 1, the government will impose a Rs 10 crore cap on the reinvestment of capital gains from the sale of housing property under the provisions of Sections 54 and 54F of the income tax act.

Section 54 lets a taxpayer claim benefits on selling a residential house and acquiring another from the sale proceeds. On the other hand, Section 54F offers tax on the long-term capital gains from the sale of any capital asset other than a house property.

The capital gains as a result of the transfer or redemption or maturity of market-linked debentures will be considered deemed as short-term capital gains and taxable at applicable slab rates from April 1, 2023. These gains were earlier claimed to be equity in nature and taxed depending on the holding period of the instrument.

Market-linked debentures are non-convertible in nature where the returns are not fixed but linked to the market.

Section 24 allows a deduction on the interest paid on a house loan up to a maximum of Rs 2 lakh in a given fiscal year in case of self-occupied property. From April 1, the cost of acquisition and the cost of the improvement will not include the amount of interest claimed under Section 24. So, the capital gain on the sale of the property will be higher and double deductions claimed by the taxpayer will be removed.