New Delhi: Experts said the budget should bring in a simplified income tax return form for assessees having only capital gains or dividend or interest income, as well as simplifying the capital gains tax regime. Under the Income Tax Law, gains arising on transfer of capital assets – both movable and immovable – are taxed under the head ‘capital gains’. The tax rate is different for different asset classes.
Further, depending on the period of holding, the income is classified as short or long term capital gain and taxed accordingly. With the capital market in India growing rapidly and companies taking the IPO route to raise funds, there is a widespread demand that the capital gains tax structure be streamlined.
The holding period for different types of assets and the number of tax rates for different types of capital assets should be reduced to a maximum of 1-2 periods or rates (with associated surcharges), said Rohinton Sidhwa, Partner, Deloitte India.
“Economic and commercial rationale dictates that set-off of all capital losses (particularly long-term capital losses against short-term capital gains) should be allowed in principle. Finally, for assessees (resident and non- Introduction of single and simplified tax return -resident) earning only capital gains/dividend/interest income will help in mitigating filing challenges,” said Sidhwa.
The Finance Ministry is already working on a user-friendly Common Income Tax Return Form for all taxpayers and an announcement to this effect is expected to be presented in the Budget for 2023-24 on February 1.
Arvind Srivatsan, Tax Leader, Nangia Andersen LLP, said that many startups are restarting in India and investors across the board have represented on the capital gains regime to be at par with the global regime. The budget may simplify the capital gains regime, remove the distinction between debt and equity and short-term and long-term.
“A single rate for taxation of capital gains whether short term or long term, whether equity, debt or hybrid products, with a unified treatment of assets held for a long period of time exceeding 12 months, thereby providing a free carry forward of loss Set and carry forward and deduction are allowed. STT (securities transaction tax) will be welcomed, Srivatsan said.
There should be a limit on the holding period, said Shardul Amarchand Mangaldas & Co-Partner Amit Singhania, adding that assets held for more than 24 months should be classified as long term.
Singhania said, “Similarly, tax rates among different classes of assets should be harmonized and simplified to provide for a standard tax rate for long term (say 10 per cent) and short term (say 15 per cent). ”
Currently, long-term capital gains on shares held for more than a year are taxed at 10 per cent. Short-term capital gains made on listed equity are taxed at 15 per cent, plus additional cess and surcharge. Sale of immovable property and unlisted shares for more than 2 years and debt instruments and jewelery held for more than 3 years attract long-term capital gains tax of 20 per cent.
The IT Act, however, excludes movable personal property such as cars, apparel and furniture from the purview of capital gains tax. Depending on the period of holding the asset, either long-term or short-term capital gains tax is levied. The Act provides for different rates of taxes for both the categories of benefits. The method of calculation is also different for both the categories. Sidhwa said that today short term capital gains are already taxed at the highest rate.
“In particular long-term capital loss cannot be set-off against short-term capital gain. The set-off of such loss is a business necessity and is artificially withholding which increases the cost of tax And does not correspond to the economic reality,” he said.
Srivatsan said that the capital gains regime should be such that it enables Indian exchanges to compete fairly with global exchanges. Wealth creation should be encouraged with attractive capital gains taxes.
“Indians need to participate in the wealth creation of our successful businesses, and higher capital gains taxes are needed to keep business offshore and allow sustainable wealth creation outside the country, as well as promote foreign exchanges,” Srivatsan said. seen for.”
IndusLaw Partner-Tax Shruti KP said that ideally, capital gains tax rates should also be the same for both resident and non-resident taxpayers. Singhania said the holding period for listed securities is 12 months, and unlisted securities and immovable property have a holding period of 24 months to qualify for long-term capital gains. Other assets have a holding period of 36 months to qualify as long-term capital gains.
“Such discrimination creates a concessional tax regime in favor of one class in favor of another class. It should be reconsidered,” he said.