Budget may tweak capital gains tax regime

The Budget may tweak capital gains taxes levied on equity, debt and immovable property to bring parity among tax rates and holding periods for investments across equity, debt and immovable property.

Currently, asset classes are not taxed uniformly and have different holding periods for levying capital gains tax, which needs to be aligned.

The Budget for 2023-24 fiscal would be presented in Parliament on February 1, 2023.

Capital gains tax

• Gain arising on transfer of capital asset is charged to tax under capital gain.

• 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.

• According to officials, the current capital gains tax structure is “complicated” and hence needs a relook.

• Depending upon the period of holding an asset, the long-term or short-term capital gains tax is levied.

• Any capital asset held by the taxpayer for a period of not more than three years immediately preceding the date of its transfer will be treated as short-term capital asset.

• Any capital asset held by the taxpayer for a period of more than three years immediately preceding the date of its transfer will be treated as long-term capital asset.

• The Act provides for separate rates of taxes for both categories of gains. The method of computation also differs for both the categories.

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