The government is planning to change its capital gains tax structure in the Budget 2023-24 to bring parity in various asset classes, like equity, debt and immovable property, to tax them uniformly, according to a Reuters report. It quoted an official saying that asset classes currently are not taxed uniformly and have different holding periods for levying capital gains tax, which needs to be aligned.
The official on condition of anonymity said, according to the Reuters‘ report, the government has received several proposals from the industry to simplify the capital gains tax structure, and changes are expected in the Budget for 2023/24.
The Budget for 2023-24 fiscal would be presented in Parliament on February 1, 2023.
According to a PTI report, on the possible tinkering in capital gains tax, Central Board of Direct Taxes (CBDT) Chairman Nitin Gupta said: “It’s part of budget process, can’t divulge.” 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 and furniture from this tax. The official said the current capital gains tax structure is ‘complicated’ and hence needs a relook.
“We are looking at the suggestions that have come in from stakeholders,” the official added. 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 India, taxes are currently imposed on investment gains based on a lock-in or holding period. Investments in equity or equity-linked mutual funds for more than one year are considered as long-term, and attract a 10 per cent tax on gains of more than Rs 1 lakh. Investments in equity held up to one year are considered short-term and attract a 15 per cent tax.
Investment in debt-oriented funds is considered long term if held for at least three years, while immovable property such as land needs to be held for at least two years to be categorised as long-term, and gains are taxed at 20 per cent. Investment in a property held for less than two years is considered short-term and taxed at the income tax rate applicable to an individual.
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