The Centre is considering reforms to the capital gains tax structure

According to authorities, the government is looking into ways to simplify the capital gains tax structure, such as rationalizing the different holding periods.

Parity within asset classes will be a crucial aspect of the examination, which may even contemplate tax rate modifications.

“The capital gains tax scheme is rather complicated. There is a case to be made for simplifying and rationalizing it “According to a government official who is aware of the discussions.

According to the individual, the suggested exercise would most likely begin with the 2019 direct tax task group report. The official stated that a final decision on the rationalization of the holding time and rates will be made at the highest political level closer to the budget.

According to tax specialists, there is a case that can be made for rationalizing asset-holding periods.

“There is a need to shorten the holding time (for classification as a long-term capital asset) of financial instruments such as bonds, debt funds, and gold ETFs from 36 months to 24 months.” Vishwas Panjiar, the partner at Nangia Andersen LLP, agreed.

Current Regulations
“In addition, the holding term for land and buildings should be expanded to 36 months or perhaps 48 months to prevent speculative transfers on an otherwise illiquid asset,” Panjiar added.

In general, any asset kept for less than three years is considered a short-term asset, however, certain assets are exempt.

Long-term assets are equities and preference shares listed on stock exchanges, equity-based mutual funds, zero coupon bonds, and Unit Trust of India units held for more than a year.

Long-term assets include immovable properties such as land, buildings, and housing property that have been owned for more than 24 months. Long-term assets are debt-oriented mutual funds or jewelry kept for more than 36 months.

The indexation benefit, or inflation adjustment, is offered for debt funds and real estate.

The task group, led by a former member of the Central Board of Direct Taxes (CBDT) Akhilesh Ranjan, proposed three asset categories: equity, non-equity financial assets, and all others, including property. Except for stocks, it suggested indexation advantages for other categories.

The panel proposed a 10% long-term capital gains (LTCG) tax on gains on the sale of stock assets held for more than a year. A 15% short-term capital gains tax was suggested for shares held for a shorter length of time.

For gains on the sale of non-equity financial assets held for more than 24 months, an LTCG of 20% with indexation was suggested. In the case of all other assets, a 20% tax with indexation on gains on sale after a 36-month holding term was suggested.

Long-term capital gains are now taxed at 20%. In the case of shares, long-term capital gains tax is 10% of the total gain in a fiscal year exceeding Rs 1 lakh. The short-term capital gains tax rate for stocks and similar securities is.

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