The government will not withdraw the decision to increase capital gains tax. Revenue Secretary Sanjay Malhotra has given this indication. He has said that a slight increase in Long Term Capital Gains (LTCG) tax on listed shares is appropriate. He described the income from listed shares as passive income. Defending the decision to do away with indexation benefits on real estate LTCG, he said income from other asset classes like shares, interest and fixed deposits do not get this benefit. He described the decision to end indexation benefit as an attempt to simplify tax rules.
Tax increase affects only high income earners
Malhotra told Moneycontrol in an interview, “Income tax rates on salary income, business income and rental income are high. LTCG on this passive income (income from shares) was only 10 percent, is this correct? It is just a small “There is growth which, according to our study, will impact only high-income people.” He also said that LTCG (LTCG) does not need to be reconsidered. This is a small increase, which the capital markets have absorbed.
Announcement of increasing LTCG tax on shares in the budget
In the Union Budget presented on July 23, Finance Minister Nirmala Sitharaman announced to increase the Long Term Capital Gains (LTCG) tax on all financial and non-financial assets to 12.5 percent. Due to this, the tax rate on listed shares has increased from 10 percent to 2.5 percent to 12.5 percent. It has decreased by 7.5 percent on real estate. But, the government has ended the indexation benefit on real estate. In indexation, the purchase price of the property was adjusted with inflation. This would reduce capital gains.
LTCG exemption limit also increased
Malhotra said that about 61 percent of long term capital gains tax comes from people whose income is more than Rs 1 crore. 88 percent LTCG comes from people whose income is more than Rs 15 lakh. This trend has also been seen in short term capital gains tax. He said, “Therefore, if the tax rate has been increased, the exemption limit for people with low income has also been increased. This will not affect people with income less than Rs 15 lakh.”
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Earlier the exemption limit was Rs 1 lakh
In the budget presented on July 23, Finance Minister Nirmala Sitharaman increased long-term capital gains on shares and equity mutual fund schemes by 2.5 percent. He also increased the exemption limit from LTCG tax from Rs 1 lakh to Rs 1.25 lakh. This means that gains up to Rs 1.25 lakh from shares and equity schemes of mutual funds will now not be taxed.