CAPITAL GAINS TAX (Syllabus: GS Paper 3 – Economy)

Context: Recently debate going on  because government is not open to reviewing the long term capital gains for sale of property.

Capital gains tax

• About: Any profit or gain that arises from the sale of a ‘capital asset’ is known as ‘income from capital gains’. Such capital gains are taxable in the year in which the transfer of the capital asset takes place. This is called capital gains tax.
• Types:

oSTCA ( Short-term capital asset ) An asset held for a period of 36 months or less is a short-term capital asset.

oLTCA ( Long-term capital asset ): An asset held for more than 36 months is a long-term capital asset.

• Budget update:

oFor classifying assets into long-term and short-term, there will only be two holding periods: 12 months and 24 months. The 36-month holding period has been removed.

oThe holding period for all listed securities is 12 months. All listed securities with a holding period exceeding 12 months are considered Long-Term. The holding period for all other assets is 24 months.

oThe taxation of Short-Term Capital Gain for listed equity shares, a unit of an equity-oriented fund, and a unit of a business trust has been increased to 20% from 15%.

oThe limit on the exemption of Long-Term Capital Gains on the transfer of equity shares or equity-oriented units or units of Business Trust has increased from Rs.1 Lakh to Rs.1.25 lakh per year. However, the rate at which it is taxed has increased from 10% to 12.5%