Key changes in capital gains tax structure on the anvil

PTI

New Delhi, November 25

The Finance Ministry is looking at rationalising long-term capital gains tax structure by bringing parity between similar asset classes and revising the base year for computing indexation benefit to make it more relevant, an official said on Friday.

Announcement likely in Budget

• Currently, shares held for more than one year attract a 10% tax on long-term capital gains
• Gains arising from sale of immovable property and unlisted shares held for more than 2 years and debt instruments and jewellery held for over 3 years attract 20% long-term capital gains tax
• The revenue department is also looking at rationalising holding period for calculating long-term capital gains

Currently, shares held for more than one year attract a 10% tax on long-term capital gains. Gains arising from sale of immovable property and unlisted shares held for more than 2 years and debt instruments and jewellery held for over 3 years attract 20% long-term capital gains tax.

The revenue department is now looking at rationalising the tax rates as well as holding period for calculating long-term capital gains and an announcement is likely in the 2023-24 Budget to be presented in Parliament on February 1. Also, a change in base year for computing inflation-adjusted capital gains is being contemplated, the official added.

The index year for capital gains tax calculation is revised periodically to make it more relevant. The last revision took place in 2017 when the base year was updated to 2001.

Since the prices of assets increase over time, the indexation is used to arrive at the inflation-adjusted purchasing price of assets to compute long-term capital gains for the purpose of taxation.

“The whole effort is to make capital gains tax structure simple and tax-payer friendly and reduce compliance burden. There is scope for bringing parity in tax rates and holding periods for similar asset classes,” the official said.

Under the Income Tax Act, gains from sale of capital assets — both movable and immovable — are subject to ‘capital gains tax’.

The Act, however, excludes movable personal assets such as cars, apparels and furniture from this tax. Depending upon the period of holding an asset, the long-term or short-term capital gains tax is levied. The Act provides for separate rates of taxes for both categories of gains. The method of computation also differs for both the categories.