Explained: Rise in collections from capital gains tax levy

“We are going to get a good amount of revenue from capital gains tax despite the fact that capital gains tax rates are much lower at 10 per cent and 15 per cent on the stock markets for long-term and short-term (respectively). We are making an estimate, it should be between Rs 60,000-80,000 crore. Last year, it was about Rs 6,000-8000 crore. That has made a huge difference. Now, with the tapering happening and rates likely to go up in the US and (with) money moving out, one does not know how the market is going to play,” Bajaj said on Wednesday at a Confederation of Indian Industry event.

Bajaj said the current capital gains tax structure is “too complicated” in terms of varied rates and period of holding across the assets and hence needs a relook. “We need to rework the capital gains structure for rates, holding periods. We would be open to some tinkering in it, the next time we get an opportunity,” Bajaj said.

“Number one is rate and number two is the period for which it is. I think it is too complicated… that we have created. For real estate, we have made it 24 months, for shares 12 months, for debt it is 36 months. We need to work on that,” Bajaj added.

Whenever any such tinkering is brought about, there would be a segment of taxpayers who would stand as gainers while there would be a segment who would lose out, compared to their present tax provision and “that becomes the most difficult part”, he said.

Capital gains tax

Under the Income Tax Act, gains from the sale of capital assets, both movable and immovable, are subject to ‘capital gains tax’. Movable personal assets such as cars, apparel, furniture are excluded from this tax.

In the Budget for 2018-19, the government had introduced a tax for long term capital gains exceeding Rs 1 lakh at the rate of 10 per cent without allowing the benefit of any indexation but grandfathered gains till January 31, 2018. “In view of grandfathering, this change in capital gain tax will bring marginal revenue gain of about Rs 20,000 crores in the first year. The revenues in subsequent years may be more,” the then Finance Minister Arun Jaitley had said in his Budget speech in 2018.

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Equity shares or units of equity-oriented mutual funds held for more than 12 months are considered long-term, while house property held for 24 months is considered a long-term capital asset.

Short-term capital gains are chargeable to tax at normal slab rates applicable to the taxpayer, except where such gain is arising from the sale of equity shares in a company or units of equity-oriented mutual fund or unit of a business trust (where STT has been paid), which attracts a tax of 15 per cent, while long-term capital gains in excess of Rs 1 lakh for equity is taxed at 10 per cent. The Budget for 2022-23 has introduced a capping of surcharge at 15 per cent for long-term capital gains on all types of assets irrespective of the capital gain. At present, the surcharge is capped at 15 per cent only for long-term capital gains on listed equity shares or a unit of an equity-oriented mutual fund or a unit of a business trust and other long-term capital gains are subject to a graded surcharge which goes up to 37 per cent.