CAPITAL GAINS TAX (Syllabus GS Paper 3 – Economy)
Context: Investors are disappointed with the numerous amendments to capital gain provisions proposed in the Budget. These changes have raised concerns about the impact on investment returns.
Capital Gains Tax
- About: It is a tax imposed on the profits (gains) derived from the sale of assets such as land, shares, etc.
- Types of Capital Gains:
o Long-Term Capital Gains (LTCG): Gains made on assets held for a period exceeding three years (one year for shares and mutual funds).
o Long-term gains on all financial and non-financial assets will attract a tax rate of 12.5% instead of 10%.
o Short-Term Capital Gains (STCG): Gains made on assets held for a period of three years or less.
o short-term capital gains on "specified" financial assets will henceforth attract a tax rate of 20% instead of 15%.
- Benefit: It was proposed to increase the limit of exemption of capital gains on certain listed financial assets from ₹1 lakh to ₹1.25 lakh per year.
- Capital Assets: Land, building, house property, vehicles, patents, trademarks, leasehold rights, machinery, and jewellery are a few examples of capital assets.
o This includes having rights in or in relation to an Indian company. It also includes the rights of management or control or any other legal right.
- Inherited Property: Capital gains are not applicable to an inherited property as there is no sale but only a transfer of ownership.
o The Income Tax Act has specifically exempted assets received as gifts by way of inheritance or will. However, if the person who inherited the asset decides to sell it, capital gains tax will be applicable.
