Financial experts demand new roadmap for long term capital gains taxation

Taxpayers are keen to learn about changes that the country’s Finance Minister Ms Nirmala Sitharaman would bring about in long-term capital gains taxes in the forthcoming budget to be unveiled on February 01 this year. In 2018, the Ministry of Finance re-imposed taxation on long-term capital gains. Currently, long-term capital gains (LTCG) are taxed at a rate of 20 per cent, plus any applicable surcharges and cess. In certain cases, such as listed securities, UTI units, or mutual funds, the LTCG is 10 per cent plus a surcharge and cess. Short-term capital gains are taxed at 15 per cent plus a surcharge and cess.

Different people opine differently on the LTCG tax imposition, which means that retail investors and tax personnel think distinctly from institutional investors. We asked a few prominent names in the personal finance industry to deduce what they believe is wrong with the current LTCG taxation laws and what changes they hope to see in upcoming budgetary discussions and disclosures.

CA Rohit J. Gyanchandani, Managing Director, Nandi Nivesh Private Limited said, “Considering the growing culture of investing in equities by retail investors, increasing the limit for exemption on long-term capital gains from the current limit of Rs. 1,00,000 per annum to higher amount can be a good move to keep the long-term investing culture growing. Also, apart from the LTCG, the limit of Rs. 1,50,000 for deduction under section 80C should be reviewed and should be increased as the income levels of individuals have increased dramatically over the past couple of years.”

Rajani Tandale, Product Head – Mutual Fund, said, “Currently, equity shares or mutual funds invested for more than a year earn 10 per cent LTCG. This tax was revoked in 2005, but it was reinstated in the 2018 budget. Gains from the sale of immovable property and unlisted shares held for more than two years are subject to LTCG at the rate of 20 per cent. The government should bring uniformity between similar asset classes by rationalizing the LTCG tax structure and even considering inflation-adjusted capital gains.”

Deepali Sen, Founder Partner, Srujan Financial Services LLP said, “The government should increase the amount of profits/gains which are not subject to tax, the exemption limit should be enhanced from Rs.1 lakh. It was introduced in Finance Act 2018.”

Rahul Agarwal, Proprietor, Advent Financial said, “Capital gains tax laws are wide and varied and extremely confusing for the common man. Tax rates, holding periods, and indexation availability vary depending on the type of capital asset, tax residency status, and so on. In my view, there is a strong need for simplifying this complex maze and streamlining the rules. Some things that should be considered for implementation right away are as follows:

  • Establish a uniform tax rate and long-term holding period based on whether the asset is movable or immovable, i.e., for all movable assets such as equity shares (whether listed or unlisted) and mutual fund/ETF units (whether equity or non-equity), the period is 12 months and the tax rate is 10 per cent.
  • Standardize the period to 24 months and the tax rate to 20 per cent for all immovable assets.
  • Raise the exemption threshold from 1 lakh to 2 lakh, as it has not been revised since its inception in 2018.”

Punit Shah, Partner Dhruva Advisors said, “The current rate of 10 per cent on LTCG for non-residents, including FPIs, is very competitive and should incentivize FPIs to make investments in Indian stock markets. This rate of 10 per cent as well as a holding period of one year to qualify as long-term are reasonable criteria and shouldn’t be tinkered with.”

Saurav Srivastava, CFA, an individual investor said, “Securities Transaction Tax (STT) was brought in the 2004 budget to replace LTCG because there were certain evasion issues noted with LTCG at that point. But then LTCG came back in 2019 while STT also continued to be imposed. So, in effect, an additional tax was imposed on stock market investments. The stock market participation rate in India continues to be in low single digits while it’s in high numbers in developed economies. Participation in the stock market would increase if the taxation regime is favourable for investors.”

Dev Ashish, a SEBI-Registered Investment Advisor and Founder (Stable Investor) said, “The government should rethink the capital gains taxation on equity. Currently, the long-term capital gains (or LTCG on gains above one year holding period) are taxed at 10 per cent without indexation on gains above 1 lakh (read more here). It would be best if the government could consider the removal of the LTCG tax on equity investments if investments are held for 24 months (or two years). This will also require redefining holding period-based segregation to 24 months from the current 12 months for deciding whether it’s short-term or long-term.”

“In general, there is an urgent need to rethink the entire capital gains taxation for various assets. There are just too many buckets under the current structure with so many confusing combinations. There is a need to simplify things and reduce the unnecessary compliance burden for everyone,” ashish added. 

Rohit Shah, Founder & CEO, GYR Financial Planners Private Limited said, “In the past, the NDA regime has made it clear why capital gains tax arbitrage should still be allowed for equity-based long-term capital gains, a practice taken advantage of by the upper middle class and affluent. I’m hopeful that the government will not meddle with something that is already functioning properly.”

Though there are discussions surrounding the probability of lower tax rates and a greater probability of revised income tax slabs in the Union Budget 2023, investors have pinned their hopes on the possibility of the government reverting to the pre-2018 rules or eroding the impact of the current laws enacted to tax LTCG. 


Different ways in which capital gains are taxed in case of equity and debt funds.

First Published: 22 Jan 2023, 03:43 PM IST

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