Rama Krishna Sangem
Will there be any relief on the capital gains tax in the coming union budget? With the first full Budget of the Narendra Modi-led National Democratic Alliance (NDA) 3.0 set to be presented later this month, investors are eagerly anticipating potential relief on capital gains taxes, according to a report by Moneycontrol. The budget is likely to be introduced in the third week of July.
Various assets, such as equities, debt instruments, and real estate, are taxed at different rates and for different holding periods, which classify the gains as either short-term or long-term. As per the Income Tax Act, gains from selling both movable and immovable capital assets are subject to ‘capital gains tax’.
Capital gains taxes can range from 10 per cent to as high as 30 per cent, depending on the holding period, which spans from one to three years. The news report, citing experts, indicated that rationalising and standardising the capital gains tax regime — by streamlining holding periods, ensuring uniformity in long-term and short-term rates across asset classes, and updating the base year for indexation — would significantly benefit investors.
Simplification of structure expected
There are expectations that the capital gains tax structure will be simplified, potentially introducing a uniform holding period for domestic equities and mutual funds, the report noted. This uniformity could enhance compliance by providing consistent tax treatment.
Currently, direct investments in listed debt securities and zero-coupon bonds (whether listed or unlisted) are considered long-term if held for more than 12 months. Conversely, investments through debt-oriented mutual funds require a holding period of 36 months to be classified as long-term.
In 2018, Finance Minister Arun Jaitley reintroduced a 10 per cent Long-Term Capital Gains (LTCG) tax on gains exceeding Rs 1 lakh, without allowing indexation benefits. Before this, in 2004, the then Finance Minister P Chidambaram had made LTCG tax-exempt while maintaining the Securities Transaction Tax (STT), which is imposed on all stock exchange transactions.
Rs 9.72 lakh cr collected 2023-24
Data from the financial year 2023-24 shows that the government earned Rs 9,72,224 crore (net of refund) from STT, while LTCG collections are estimated to be significantly lower, the report highlighted. Ahead of the recent general elections, there were speculations that the government might consider uniform treatment for all asset classes. However, the Finance Ministry has dismissed these reports as speculative.
The report said that the mutual fund industry believes that the government, given the current political climate, might avoid making any drastic changes that could unsettle investors. Presently, selling listed securities such as shares and units of equity-oriented mutual funds within a year incurs a 15 per cent Short-Term Capital Gains (STCG) tax. If these securities are sold after a year, a 10 per cent LTCG tax is applied on gains exceeding Rs 1 lakh per year.
On the whole, this union budget will tell us the direction of the next five years of this NDA 3.0 government’s economic policies. BJP generally listens to the demands of the salaried middle-class and business sections during the time of the budget. So, the coming full fledged budget will also indicate the mind of the BJP led government at the Centre.
