Simpler structure: capital gains taxes could be revised

The government is ready to simplify the capital gains tax regime at the next opportunity, a senior official said on Wednesday, leading analysts to expect a reduction in the tax impact on gains resulting from the sale of unlisted stocks, real estate investment units trusts and maybe even debt funds. It is not immediately clear whether these changes will be introduced in the 2022 budget bill, which is currently before Parliament, or in next year’s budget.

Currently, the long-term capital gains tax (LTCG) is more benign on listed stocks, while other types of assets, including real estate, attract tax at lower rates. higher rates, plus taxpayers having to hold them longer to escape rising short-term taxes.

“We need to review the structure of capital gains in terms of rates and holding periods. We would be open to (change) the structure as we get the chance,” Union Revenue Secretary Tarun Bajaj said at a post-budget event hosted by CII. He admitted that the current structure is “too complicated”.

The last time the government changed the capital gains tax regime was in the FY 2019 budget when it reintroduced the LTCG on listed shares.

An increase in capital market transactions and the boom in the market could enable the government to collect tax revenue of between Rs 60,000 and Rs 80,000 crore on all types of capital gains in the current financial year, Bajaj said. This could be many multiples of FY21’s collections.

The official added that the issue of capital gains tax creates a lot of friction when discussed in any forum due to varying rates and holding periods. “I think it’s too complicated (a structure) that we’ve created…the problem is that when we do something, some people will be losers under (under) the current arrangements and some will be winners,” he said. he declares.

Currently the holding period for long-term capital gains tax is over 12 months for listed stocks/debt securities, while it is over 24 months for stocks and bonds. unlisted real estate, and 36 months for mutual funds and debt securities.

The long-term capital gains tax on listed shares is 10% on gains exceeding Rs 1 lakh without indexation benefit, while short-term gains are taxed at 15% (STCG ), for domestic and foreign investors. The LTCG is 20% on unlisted shares for domestic investors and 10% for non-residents, while the STCG is payable at the rate applicable to the relevant person’s tranche. Similarly, the STCG on debt funds is in line with the individual’s tax slab rates, while the LTCG is 20% with indexing benefit.

“There must be parity between listed and unlisted shares with respect to holding periods. There is also (the issue of) higher tax rates for short/long term capital gains on unlisted shares compared to listed shares,” said Gaurav Karnik, tax partner at EY India. It is unfair that an investor must hold listed shares of real estate investment trusts for 36 months to benefit from the (low) LTCG rate of 10%, while he only has to hold listed shares for 12 months (for the low).

While the tax department has already studied capital gains tax rates in peer countries and the developed world. Bajaj commissioned CII to conduct a study of prevailing capital gains tax rates around the world and prepare a report.

While capital gains tax collections have been robust this year, the government is keeping its fingers crossed on revenue from these taxes in FY23. central banks and liquidity withdrawals) and rising U.S. interest rates, it’s unclear how the market will play out (in FY23),” Bajaj said.