Centre mulling changes to capital gains tax regime For equities held for a shorter period, a 15% short-term capital gains tax was proposedThe government is examining possible changes to the capital gains tax regime to make it simpler, including rationalisation of the multiple holding periods, officials said.
Parity within asset classes will be a key consideration in the review that may even consider changes in the tax rate.
"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 direct tax task force report of 2019 is likely to be a starting point for the proposed exercise, the official added. A final call on the rationalisation of the holding period and the rates would be taken at the highest political level closer to the budget, the official said.
Tax experts said there is a case for rationalising the holding period of assets.
"There is a need to reduce the holding period (for classifying into a long-term capital asset) of financial products like bonds, debts funds, gold ETF to 24 months from 36 months. " said Vishwas Panjiar, partner, Nangia Andersen LLP.
"Also, for land and building, the period of holding should be increased to 36 months or even 48 months to discourage speculative transactions on an otherwise illiquid asset," Panjiar said.
In general, any asset held for less than three years is considered a short-term asset, but there are some carve-outs for certain assets.
Equities and preference shares listed on stock exchanges, equity-based mutual funds, zero coupon bonds, and Unit Trust of India units are considered long-term assets if held for a period of over 12 months.
Immovable properties such as land, building, and house property held for over 24 months are categorised as long-term assets. Debt-oriented mutual funds or jewellery are considered long-term assets if held for over 36 months.
The indexation benefit, or adjustment for inflation, is available for debt funds and real estate.
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. It 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.
Currently, long-term capital gains are in general taxed at 20%. Long-term capital gains tax in the case of equities is 10% if the total gain in a financial year exceeds Rs 1 lakh. The short-term capital gains tax rate for equities and related assets is 15%. In the case of other assets, short-term capital gains are clubbed with income and taxed at the appropriate rate.
This story originally appeared on: India Times - Author:Tax Cognition