Indian Government

capital gains: Government open to ‘some tinkering’ in capital gains tax regime: Revenue Secretary Tarun Bajaj


The government is open to ‘some tinkering’ in the varied rates and holding period for computation of capital gains tax on shares, debt and immovable property, in a bid to make it simple, Revenue Secretary Tarun Bajaj said on Wednesday.

In the current fiscal, the revenues from capital gains tax is expected to jump 10-fold to about Rs 80,000 crore.

Under the Income Tax Act, gains from sale of capital assets, both movable and immovable, are subject to ‘capital gains tax’. The Act, however, excludes movable personal assets such as cars, apparels, furniture from this tax.

Bajaj said the current capital gains tax structure is “too complicated” in terms of varied rates and period of holding across the assets and hence needs a relook.

“We need to rework the capital gains structure for rates, holding periods. We would be open to some tinkering in it, the next time we get an opportunity,” Bajaj said at a CII event.

Asking the industry chamber to also conduct a study on what are the prevailing rates of capital gains tax across the world, Bajaj said, the department has already studied the rates in other nations like India and the developed world.

“Number one is rate and number two is the period for which it is. I think it is too complicated… that we have created. For real estate, we have made it 24 months, for shares 12 months, for debt it is 36 months. We need to work on that,” Bajaj said.

Observing that when any such tinkering is brought about, there would be a segment of taxpayers who would stand as gainers, while there would be a segment who would lose out compared to their present tax provision, the Secretary said, adding “that becomes the most difficult part”.

Depending upon the period of holding an asset, the long-term or short-term capital gains tax is levied. The Act provides for separate rates of taxes for both categories of gains. The method of computation also differs for both the categories.

In general, when an asset is held for more than 36 months, it is termed as a long-term asset, otherwise short-term.

However, equity shares or units of equity oriented mutual funds held for more than 12 months are considered long-term, whereas house property has to be held for 24 months to be considered a long-term capital asset.

Short-term capital gains are chargeable to tax at normal slab rates applicable to the taxpayer, except where such gain is arising from sale of equity shares in a company or units of equity oriented mutual fund or unit of a business trust (where STT has been paid), which is chargeable to tax at the rate of 15 per cent, while long-term capital gains in excess of Rs 1 lakh is taxed at 10 per cent.

Bajaj said in the current fiscal, the government is likely to collect good revenue from capital gains tax despite the fact that capital gains tax rates are much lower at 10 per cent and 15 per cent respectively for long-term and short-term.

“We are making an estimate that it should be between Rs 60,000-80,000 crore. Last year it was about Rs 6,000-8000 crore. Now with the tapering happening and rates likely to go up in the US and (with) money moving out, one does not know how the market is going to play,” Bajaj said.


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