In the latest development, the Government of India has plans to reform the capital gains tax. This proposal may happen in the next budget, which will enable the Government to augment its revenue collection. The funds collected will enable them to increase the spending on welfare schemes—two officials reported the deliberations regarding this aspect.
The finance ministry has researched and found out that income earned from the capital market is passive. However, it should not be taxed at a lower rate than a business’s earnings that involve entrepreneurial risks and job creation.
The need to spend more on welfare and the need to boost the revenue has made this proposal from the Government studied by the finance ministry so that implementation can be possible by the next budget announcement.
The officials mentioned that a capital gains tax structure would be maintained to ensure further legislative amendments, if necessary, in the future. This proposal will be taken up in the next budget as there is still an ongoing study on how its implementation and course would have happened if passed.
The present structure of capital gains tax
At present, the capital gains that happen to be on the listed equities, if held for more than a year, will be taxed at 10% on the portion of the gain that has a threshold limit of Rs. 1 lakh. This provision was brought into effect from the 1st of April 2019. The taxing policy was mainly determined on the holding period for determining the gain made irrespective of the short term or the long term it was being held at the time of selling the asset. If the listed equity is held for less than a year, then a tax of 15% is charged for unlisted shares. Whereas a tax slab is utilized for listed shares
