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New roadmap likely for capital gains taxation in Budget 2023-24

Nov 22, 2022,

“We do not wish to subject taxpayers to differential periods (for levying tax on capital gains) for various asset classes. The tax slabs and rates also differ, which makes the whole structure cumbersome”, a finance ministry official said, adding that the changes may take place within two years.

The tax authorities are undertaking a comparative analysis of India’s capital gains taxation regime with that of other countries with an eye on possible modifications in the upcoming general Budget 2023-24.

“We do not wish to subject taxpayers to differential periods (for levying tax on capital gains) for various asset classes. The tax slabs and rates also differ, which makes the whole structure cumbersome. We want simplicity. The government is certain that it wants to do it, but we would like make the modifications at the right time. Our decisions may benefit many, but also hurt a few – which is the difficult part”, a Finance Ministry official said, adding the changes may take place within two years.

Last week, news reports quoted Central Board of Direct Taxes (CBDT) Chairman Nitin Gupta saying that Budget 2023-24 was expected to announce changes in capital gains tax. However, he did not give details regarding the changes in capital gains tax structure that the finance ministry may decide on.

At present, the capital gains tax regime prescribes the holding period for determining whether the gains made at the time of selling the asset is short-term or long-term. The holding period and tax rate differ depending on the asset class. For certain assets, long-term capital gains are taxed without the benefit of indexation or accounting for inflation, which the government feels should be revised.

The government is also keen to reduce complexities in the personal income tax structure, especially those related to exemptions. “We want to bring changes to the personal income tax slab structure and make a few minor modifications to the exemptions that have been granted. It is obvious that when we give this relief to the middle class, we will take something from the other class,” added the official.

The Finance Ministry has begun its customary pre-budget meetings with various stakeholders including industry associations among others. The Confederation of Indian Industry (CII) has sought lowering personal income tax rates in order to boost consumption in the Indian economy.

In the Budget for 2022-23, the government decided that the surcharge on long-term capital gains tax on equity investments will be up to 15 per cent, while other long-term capital gains were subjected to a graded surcharge of up to 37 per cent.

The surcharge on long-term capital gains on transfer of any type of assets was capped at 15 per cent.

Previously, the surcharge on long-term capital gains was applicable only on listed shares and equity funds, but in the case of other long-term capital gains, the surcharge was based on the total income. However, the Budget for 2022-23 proposed a cap on all kinds of long-term capital gains.

There has been a demand to do away with long-term capital gains on equities due to securities transaction tax that is imposed on share market trade.

Revenue Secretary Tarun Bajaj had previously said that most of the capital gains on equities are made by people with high income. Hence, they should pay the taxes.

Gupta also said that the Budget for 2023-24 could bring about some tweaks in the tax deducted at source provision for online gaming to contain evasion of taxes.

"Currently there is a provision for deduction of TDS on online gaming. There is existing provision, if it needs to be modified or retained in the same way that needs to be seen," he said.

[Business Today]