How govt can rationalise tax on capital gains


Capital gains tax in India was reintroduced in Union budget 2018 and has gone through slight changes since then. Ever since the reintroduction, there has been a call for complete exemption or at least a restructuring in taxation for long-term and short-term capital gains. 

Nirmala Sitharaman

Finance Minister Nirmala Sitharaman.

Rationalising capital gains tax on various asset classes has emerged as a key demand ahead of the Union Budget 2022-23, given the inconstancies that remain in this area over the past few years.

Capital gains tax in India was reintroduced in Union budget 2018 and has gone through slight changes since then. Ever since the reintroduction, there has been a call for complete exemption or at least a restructuring in taxation for long-term and short-term capital gains.

Experts have suggested a series of measures that the government can consider in the upcoming budget to rationalise taxes on capital gains.

REBATE FOR LONG-TERM CAPITAL GAINS ON EQUITY

One of the demands suggested by experts is a rebate on long-term capital gains with regard to equity products. According to experts, this will help promote investment in equity products for the long term rather than short term bets. This will also help promote the government’s vision of long-term investments, evident from the lower tax rate applicable on long-term capital gains in comparison to short-term capital gains.

RATONALISED TAX RATE

There is a tax rate of 15 per cent on short-term capital gains on equity products at the moment, unlike capital assets that are taxed at individual slab rate. Therefore the short-term capital gains tax rate on equity is significantly higher for taxpayers and experts feel this should be rationalised and it should not be more than the slab rate applicable to the taxpayer.

HOLDING PERIOD

The holding period for financial products like bonds, debts funds, gold ETF should be reduced to 24 months from 36 months with regard to long-term categorisation. Apart from this, experts suggest that the holding period for non-financial assets like land and building should be increased to 36 months.

ALSO READ | Union Budget 2022-23: 4 steps govt can take to ease burden on taxpayers

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