Home / Markets / Stock Markets /  Capital gains tax could be changed in next Budget: Report

An income tax official of the finance ministry on Tuesday said that changes in capital gains tax in India are expected in the next budget. The official, speaking at an event in the national capital, said that India would exceed budget estimates for direct tax collection by 25-30% in financial year 2022-2023.

Mint had earlier reported that the Modi administration will likely to revamp the capital gains tax structure in the next budget to augment revenue collections and boost spending on welfare schemes.

At the heart of the proposal being studied in the finance ministry is the Central Government's philosophy that passive income earned from the capital market should not be taxed at a lower rate than income earned from doing business, which involves taking entrepreneurial risks and job creation.

The plan is also rooted in the Central Government's idea of welfarism for which revenue needs to be boosted.

“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.

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.

Immovable properties including land, building, and house property held for more than 24 months are categorised under long-term assets. Debt-oriented MFs or jewellery are considered to be long-term assets if held for more than three years.

Short-term capital gain on listed equities held for less than a year is taxed at 15% in the case of listed shares and the applicable tax slab if it is unlisted.

Any asset held for less than three years is considered to be a short-term asset, however, there are some carve-outs for certain assets.

A second official had earlier said that taxation and benefit transfers were two levellers as far as tackling income inequality is concerned. “In India, we do not have the data, but experience from countries such as the US, where data is available, suggests the picture of post-tax, post-transfer income inequality is quite different from the one painted by data on pre-tax, pre-transfer income inequality," the official noted.


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