Capital gains tax regime needs change: Revenue Secretary Tarun Bajaj

Revenue Secretary Tarun Bajaj said on Wednesday that the current capital gains tax regime needed a fresh look and that the different rates and holding periods also needed to be streamlined.

Speaking at an event organized by industry body Confederation of Indian Industry, Bajaj also said that if the Center had not provided Rs 1 trillion in long-term loans to states, the target budget deficit for 2022-23 (FY23) would have been 6%, compared to 6.4% of nominal gross domestic product (GDP) budgeted.

“My point of view is that it is absolutely necessary to rethink capital gains. Every time I talk about it, it creates friction. I think it’s too complicated in terms of rates and holding periods. It’s a work in progress,” he said, addressing industry representatives.

“We’ve done some work on this to see what the rates and periods are elsewhere in the world, including other developing and developed countries. I think there’s a lot to be done. The problem, it’s that when you rationalize, some investors will lose, some will gain. That’s the hard part,” he said, adding that industry bodies should also come up with suggestions on how best to rationalize the capital gains regime.

Capital gains tax rates and holding periods differ for different asset classes. For example, stocks and mutual funds (MF) are subject to a short-term capital gains (STCG) tax of 15% and a long-term capital gains (LTCG) tax of 10%. % for winnings above Rs 1 lakh. The STCG on most bond investments is at the level of the tax slab under which the investor falls. However, the LTCG is 10% or 20%, depending on whether it is a listed or unlisted bond or a debt fund. For real estate, the LTCG is 20%.

During pre-budget interactions with Finance Minister (FM) Nirmala Sitharaman and her officials, markets and industry representatives called for a simplification of the capital gains tax structure. In his 2022 Union Budget, Sitharaman only changed the surcharge on LTCG resulting from the transfer of any type of assets, capping it at 15%, down from 37% previously.

Under income tax law, gains from the sale of fixed assets, both movable and immovable, are subject to capital gains tax. However, the law excludes from this tax personal movable property, such as cars, clothing and furniture.

Bajaj said that in the current fiscal year (2021-22, or FY22), the government is likely to collect good revenue from capital gains tax. “We estimate it should be between Rs 60,000 and Rs 80,000 crore for FY22. Last year it was around Rs 6,000 to 8,000 crore. market will play,” he said.


Speaking on the budget calculations, Bajaj said that if the Center had “hypothetically” not allocated Rs 1 trillion to the states in long-term loans over 50 years for their investment needs for the financial year 23, the budget deficit target would have been 6% of GDP. The Centre’s FY23 capital expenditure includes this Rs 1 trillion provision.

Bajaj also said the government is ready to consider requests from the restaurant industry to revert to a higher Goods and Services Tax (GST) rate, as well as receive a tax credit. on their inputs.

Currently, a 5 percent tax is levied on catering services, whether air-conditioned or not, without benefiting from the input tax credit. Additionally, restaurants in star hotels that charge Rs 7,500 or more per day will be charged 18% GST, but are given an input tax credit. Restaurants in hotels charging less than Rs 7,500 per room rate will charge 5% GST but will not get input tax credit.

“I also got this suggestion from the restaurant industry that they would like to go back to a higher tax rate with an input tax credit given to them, rather than (being) just in the 5% tax rate. Which is good. We would be willing to look at that,” Bajaj said.

A final decision on tax rate inversion for the restaurant industry will be made by the GST Board, chaired by the FM and state FMs.

Bajaj said that this year the attempt will be to make some changes to the GST framework, so that there is stability and commerce knows the tax rates and can plan accordingly.

The GST Council has already set up a group of state ministers under the leadership of Karnataka Chief Minister Basavaraj Bommai to suggest changes in the GST rate structure, reduction of the list of exemption and a correction of the reverse duty structure to broaden the tax base. The panel is expected to deliver its report in the coming months, Bajaj said.

“I understand that GST rates on some items need to be lowered to bring parity with others, but it’s necessary to look at the other side because states this year, once clearing is complete on June 30, will face a huge shortage of funds, possibly exceeding 1 trillion rupees,” he said.

There were requests to merge the slabs by 12% and 18%, as well as removing some items from the exempt category to balance the impact of the slab streamlining on revenue.

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