Budget to make major changes to the capital gains tax structure

Income Tax Budget - Major Changes - Capital Gains Tax Structure - taxscan

In a significant move, the Center is very likely to make major changes to the capital gains tax structure to bring more clarity. The legislative changes should be made in the 2023 finance law.

Changes to India’s capital gains tax are expected in the upcoming budget, an income tax official with India’s Ministry of Finance said on Tuesday. Reportedly, the official, speaking at an event in New Delhi, said India would exceed budget estimates for direct tax collection by 25-30% in fiscal year 2023.

It has been revealed that the government is likely to revamp the capital gains tax structure in the upcoming budget to increase revenue collection and increase spending on social welfare schemes.

“Making the capital gains tax structure more efficient requires legislative changes. It could be picked up in the next budget because it cannot be done on the fly,” an official said earlier. Long-term vs. short-term capital gains Currently, long-term capital gains are generally taxed at 20%. In India, long-term capital gains on listed shares held for more than one year are taxed at 10% on the portion of such gains exceeding a threshold of ₹1 lakh. This provision was introduced with effect from April 1, 2019,” sources said.

The capital gains tax regime prescribes the holding period to determine whether the gain on the sale of the asset is short-term or long-term.

“The capital gains tax regime is a bit complex. It needs to be simplified and streamlined,” said a government official familiar with the deliberations.

The task force, led by former Central Board of Direct Taxation (CBDT) member Akhilesh Ranjan, had suggested three categories of assets: equities, non-equity financial assets, and all others, including goods.

The task force further proposed indexing benefits for all classes except equities. The panel suggested a 10% long-term capital gains tax (LTCG) for gains on the sale of equity assets held for more than 12 months. For shares held for a shorter period, a short-term capital gains tax of 15% has been proposed. For non-participating financial assets held for more than 24 months, a 20% LTCG with indexation has been proposed for capital gains on disposal. For all other assets, a 20% tax with indexation on capital gains on disposal after holding for 36 months has been proposed.

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