The Centre needs to take a fresh look at the country’s capital gains tax regime, which has become too complicated, revenue secretary Tarun Bajaj said on February 9.

Speaking at a post-Budget interaction with business leaders organised by industry body Confederation of Indian Industry (CII), the bureaucrat said the government would be open to some tinkering of the rates and holding periods at the next opportunity.

“I think it is too complicated in terms of rates and holding periods. This is a work in progress,” he said about capital gains tax on shares, debt and immovable property in India.

The present structure

Under the Income Tax Act, an investor has to pay capital gains tax on the profit made from the sale of movable and immovable capital assets. The Act does not take into account sale of movable personal property like cars, furniture and apparels from this tax.

The rates and holding periods of the capital gains tax vary for different asset classes. The rate for long-term capital gains tax for debt mutual funds, unlisted bonds and real estate is 20 percent, while that of listed bonds, equity and equity mutual funds is 10 percent, Business Standard reported.

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The holding period for long-term capital gains tax for shares, equity mutual funds and listed bonds is 12 months, but for real estate, it is 24 months. For debt mutual funds and unlisted bonds, the holding period is 36 months.

The holding period helps to determine if the sale of the asset will attract short-term or long-term capital gains tax. Rate of short-term capital gains tax is higher than long-term gains.

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Short-term capital gains attract a tax under the normal slab rates, except in sale of shares, units of equity-oriented mutual fund and unit of a business trust, PTI reported. These attract a short-term capital gains tax at the rate of 15 percent.

What are the issues?

According to Bajaj, the primary issue that requires a fresh look is the tax rate, while the second important issue is the holding period. However, rationalising the current system would mean that one segment of taxpayers would gain while others would lose out in the new regime.

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“That is the difficult part,” he said, seeking suggestions from the industry bodies in the next 3-4 months on how best to streamline the capital gains tax regime.

The revenue secretary said the government has also studied the rates of other countries.

(Edited by : Shoma Bhattacharjee)

First Published:Feb 10, 2022 6:05 PM IST