Revenue secretary: On capital gain tax and startups

In a post-budget discussion, the revenue secretary stated that the capital gains tax regime needs a relook as it has become too complicated. He further stated that they did the groundwork of comparing capital gain tax law in India with other developed countries, and they feel that the tax structure needs to be simplified. Capital gain tax rates and the different holding periods for various asset classes have complicated the capital gain tax regime. 

Various asset classes like property, listed equity shares and mutual funds, jewellery, debt mutual funds, etc., have different holding periods defined in the law. The tax rate is also different for all the categories of the assets, depending on their holding period. 

The holding period categorises the asset into long term and short-term capital gains. Generally, short-term capital assets are taxed at a higher rate than long-term capital assets. 

For stocks and shares, the holding period is 12 months. For real estate, it is 24 months; for debt and other capital assets, it is 36 months. If the asset is sold after the holding period defined for the specif category, it is considered a long-term capital asset. Whereas, if the asset is sold before this timeline, it is regarded as a short-term capital asset. 

In the case of real estate, a short-term capital gain is added to your total income and taxed as per the income tax slab. Whereas long-term capital gain from the property is taxable at 20% after indexation benefit. If we talk about listed equity shares, then long term gains from listed shares are taxable at 10% on amounts exceeding Rs.1 lakh without any benefit of indexation. Short term capital gain tax from listed equity shares is taxable at 15%. 

Categorising many asset classes into different holding periods and tax rates has complicated the tax regime and might need a fresh look. 

Additionally, our Revenue Secretary informed in a recent talk that they expect fresh investments in the coming month with an extension of tax benefits to startups. He added that extending the tax benefits to startups was made as there was demand from many stakeholders to offer more time, considering the pandemic situation. 

For any clarifications/feedback on the topic, don’t hesitate to contact the writer at jyoti.arora@cleartax.in.

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