In a significant move, the Centre is most likely to bring some major amendments to the capital gain tax structure in order to bring more clarity. The legislative changes are expected to be made in the Finance Act, 2023.
Changes in capital gains tax in India are expected in the next budget, an income tax official from India’s finance ministry said on Tuesday. Reportedly, the official, speaking at an event in New Delhi, said India would exceed budget estimates for direct tax collection by 25-30% in FY2023.
It was revealed that the Government will likely to revamp the capital gains tax structure in the next budget to augment revenue collections and boost spending on welfare schemes.
“Making the capital gains tax structure more efficient needs legislative amendments. This may be taken up in the next budget as it cannot be done out of the blue,” an official said earlier. Long-term vs short-term capital gains At present, long-term capital gains are in general taxed at 20%. In India, long-term capital gains on listed equities held for over a year is taxed at 10% on the portion of such gain above a threshold of ₹1 lakh. This provision was introduced with effect from 1 April, 2019,” sources said.
The capital gains tax regime prescribes the holding period for determining whether the gain made when selling the asset is short term or long term.
“The capital gains tax regime is slightly complex. There is a case for simplifying and rationalising it,” said a government official aware of the deliberations.
The task force, headed by former Central Board of Direct Taxes (CBDT) member Akhilesh Ranjan, had suggested three categories of assets: equity, non-equity financial assets, and all others including property.
The taskforce further proposed indexation benefits for all categories except equities. The panel suggested long-term capital gains (LTCG) tax of 10% for gains on the sale of equity assets held for more than 12 months. For equities held for a shorter period, a 15% short-term capital gains tax was proposed. For non-equity financial assets held for over 24 months, an LTCG of 20% with indexation was proposed for gains on sale. In the case of all other assets, a 20% tax with indexation on gains on sale post holding a period of 36 months was proposed.
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