New Delhi: The capital gains tax regime has become too complicated and needs a relook, revenue secretary Tarun Bajaj said at a post-budget interaction with business leaders on Wednesday.
Bajaj said that the government has done some groundwork comparing the capital gains tax regime in India and other countries, and has sought suggestions from business leaders in the next three-four months.
Addressing business leaders at the interaction organised by industry body the Confederation of Indian Industry (CII), Bajaj said that an absolute fresh look was needed on the capital gains tax regime.
Bajaj said that the first issue warranting a fresh look was the capital gains tax rate itself and the second was the holding period as the framework has become “too complicated". “For real estate, we have made it (the holding period) 24 months, for shares, we have made it 12 months, for debt it is 36 months. So we really need to work on that," said Bajaj.
The capital gains tax regime prescribes the holding period for determining whether the gain made at the time of selling the asset is short-term or long-term. Short-term capital gain is taxed at a higher rate than long-term capital gain. The holding period and the tax rate differ as per asset classes whether it is property, movable assets like jewellery, listed shares and equity-oriented mutual funds or debt-oriented mutual funds. In certain assets like property, short term capital gain is taxed as per the income tax slab. Long-term capital gain from listed equity shares of more than ₹1 lakh attracts a 10% tax without the benefit of indexation or accounting for inflation.
Bajaj also said that one hurdle is that any tweak in the regime would mean there will be gainers and losers compared to the current regime. That becomes the difficult part, he said.
He told business leaders that the lower corporate tax regime for new manufacturing units was extended till end of March 2024 because there was a demand from businesses for more time to make use of the scheme given the pandemic situation. The due date refers to the time available for new factories taking advantage of this scheme to start production.
Bajaj said that capacity utilisation in the industry has improved and many industry representatives have disclosed capital expenditure plans. “So I presume that 2024 is more than two years from now. We should be seeing some activity there," Bajaj said, expecting the industry to make fresh investments in the coming months.
The revenue secretary also said if there is more revenue buoyancy in FY23 than suggested by the budget estimates, it could prove to be a buffer for any unexpected funding requirements as had seen in recent years. Bajaj said that if any extra spending for vulnerable sections of society is needed, it has to be provided and that there was no second thought on that. Bajaj’s comments imply that the actual collection of certain revenue items could exceed initial estimates for FY23.
