Govt likely to revamp capital gains tax in next budget to boost revenue: Report

Centre is expected to revamp the capital gains tax structure in the next budget to augment revenue collections and boost spending on welfare schemes, LiveMint reported on Tuesday citing two officials privy to the matter.

According to the proposal, which is reportedly being studied in the finance ministry, the Narendra Modi-led government’s philosophy is that passive income earned from the capital market should not be taxed at a lower rate than income earned from doing business, which involves taking entrepreneurial risks and job creation.

The government wants to boost revenue from the capital market to support welfare activities, the report said.

Currently, long-term capital gains (LTCG), which was was introduced with effect from 1 April 2019, on listed equities held for more than a year is taxed at 10 percent on profits above a threshold of Rs 1 lakh.

On the other hand, short-term capital gains on listed equities held for less than a year is taxed at 15 percent.

“Making the capital gains tax structure more efficient needs legislative amendments. This may be taken up in the next budget as it cannot be done out of the blue," LiveMint quoted as saying one of the officials cited above.

Another official, on condition of anonymity, said taxation and benefit transfers were two levellers as far as tackling income inequality is concerned. “In India, we do not have the data, but experience from countries such as the US, where data is available, suggests the picture of post-tax, post-transfer income inequality is quite different from the one painted by data on pre-tax, pre-transfer income inequality," the official said.

The government estimates that long-term capital gains are taxed in many countries at the 25-30 percent range, or the applicable income tax rates, the government said.

Higher capital gains tax in India when compared with other emerging market economies could reduce the country’s relative attractiveness as an investment destination and encourage Indians to invest in other assets.