An income tax official in the Ministry of Finance said at an event today that changes in capital gains tax in India are expected in the next budget. The official said that India would exceed budget estimates for direct tax collection by 25-30% in the financial year 2022-2023. “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,” the official said.
It has been speculated for a while that the Narendra Modi administration might revise the capital gains tax structure in the next budget for higher revenue collections, which, in turn, would help the union government spend more on socialist schemes. Sources say that the government’s principle is that passive income from the capital market should not be taxed less than the income from businesses, which calls for entrepreneurial risks and job creation. This and, of course, welfare politics.
Long-term vs short-term capital gains
Since 1 April 2019, long-term capital gains have been taxed at 20% in general. Long-term capital gains on listed equities held for over a year in the country are taxed at 10% on the portion of such gain above a cut-off mark of Rs 1 lakh.
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 like land, building and house held for more than two years are classified as long-term assets. Debt-driven mutual funds or jewellery are deemed long-term assets if held for more than three years.
On the other hand, 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. An asset held for less than three years is considered a short-term asset, barring a few exceptions.
Another finance ministry official had said earlier 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.