Capital gains tax provisions need serious review, govt open to ‘tinkering’ to simplify it: Revenue Secretary Tarun Bajaj

He also asked the industry to also conduct a study on the prevailing rates of capital gains tax across the world, adding that the department has already studied rates in other nations like India and the developed world.

“I would request industry to actually see and do some work by comparing the rates and categories with the rest of the world. So that before we go ahead and work on it, we would like the industry to work on it and give suggestions. We are engaged in a very active discussion with OECD framework, where we are working on pillar 1 and pillar 2. One of the other issues which India has taken up is capital gains.”

He added that process of negotiations is underway and if all countries agree then the issue might get resolved.

Under the Income Tax Act, gains from the sale of capital assets, both movable and immovable, are subject to capital gains tax. The Act, however, excludes movable personal assets such as cars, apparel, and furniture from this tax.

What could the rejig mean and which are the pain points? And most importantly, is government open to bringing those changes during the year?

Reflecting on this, Bajaj said, “We need to rework the capital gains structure for rates, holding period… I would welcome the industry to undertake a study on this and in the next 3-4 months, we will be open to making some tinkering on it whenever we get the next opportunity.”

Further highlighting the possible changes that can be brought in, he said, number one is rate and number two is the period, as the existing framework is “too complicated.” “For real estate we have made it 24 months, for shares 12 months, for debt it is 36 months. we need to work out on that,” he explained.

It is important to note that the chairman of the committee suggesting changes to Income Tax Act and former member of central board of direct taxes, Akhilesh Ranjan too told CNBC-TV18 in a pre-budget discussion that the current capital gains tax rules are too complicated and simpler regime would be welcomed.

He also proposed a way forward in this regard in the report submitted to Finance Minister Nirmala Sitharaman. However, no formal decision on the report has been taken as yet.

Bajaj, meanwhile, observed that when any such changes are brought, there would be a segment of taxpayers who would stand to gain while there would be a segment who would lose out when compared to their present tax provision. “That becomes the most difficult part,” he said.

The long term or short term capital gains tax is levied depending on the period of holding an asset. The Act provides for separate rates of taxes for both categories and the method of computation also differs.

In general, when an asset is held for more than 36 months, it is termed as a long term asset and a short term otherwise.

However, equity shares or units of equity oriented mutual funds held for more than 12 months are considered long term whereas house property has to be held for 24 months to be considered long term capital asset.

Short term capital gains are chargeable to tax at normal slab rates applicable to the taxpayer, except where such gain is arising from sale of equity shares in a company or units of equity oriented mutual fund or unit of a business trust (where STT has been paid), which is chargeable to tax at the rate of 15 percent

This fiscal, the government is also likely to get a cushion from the revenue collections from the capital gains window. Bajaj said the collections are showing healthy signs, “I am going to get good revenue from the capital gains tax this year. Inspite of the fact that the rates are much lower, we should get Rs 60,000 crore to Rs 80,000 crore, that what's estimates say. Last year, this was only Rs 6000 crore to Rs8000 crore. So that has also made a huge difference in revenue estimates this year.”