Union Finance Secretary TV Somanathan said on July 29, 2024, that capital gains, one of the fastest-growing income classes, ought to be taxed at a higher rate so that the government can raise more revenue.
Union Finance Secretary said that capital gains are taxed in India at lower rates than in many developed countries. Read on to know his views on capital gains tax on shares and property.
Union Finance Secretary TV Somanathan said on July 29, 2024, that capital gains, one of the fastest-growing income classes, ought to be taxed at a higher rate so that the government can raise more revenue.
Businessline, citing one of its post-budget discussions, quoted Somanathan saying that the increase in capital gains taxes aimed to simplify the tax structure.
The structure for classifying capital gains in assets has been simplified to two holding periods from three. The Budget removed the indexation benefit for calculating long-term capital gains on property, gold, and other unlisted assets and applied a 12.5 per cent capital gains tax on these assets.
In the recent budget, the LTCG tax on the sale of listed equity shares and equity-oriented mutual funds was hiked from 10 per cent to 12.5 per cent, while assets such as real estate saw a reduction from 20 per cent to 12.5 per cent, with indexation benefit removed. Meanwhile, STCG from the sale of listed equity shares and equity-oriented mutual funds from July 23, 2024, will be taxed at 20 per cent from erstwhile 15 per cent.
In the context of raising government revenues, he observed that 'capital gains' are the fastest-growing asset class in the country. He cited the fact that current rates after the hikes are lower than in many developed countries. “Our tax-GDP ratio is not high, our capital gains tax to overall tax ratio is much lower than in most other developed countries. India cannot have a world-class Capital Market and not expect to have some amount of reasonable taxes levied on capital gains,” Somanathan said.
Stressing the point on equity and fairness, Somanathan said that if capital gains tax were not raised, a concessional rate of tax on capital gains would be unfair to those who earn incomes through other means.
Somanathan stated that taxing real estate gains without indexation would benefit taxpayers and not the government, but highlighted that the tax increase on securities aims to raise revenue for the government. He described the 12.5 per cent rate on real estate gains as "liberal" as real estate investors have the option to reinvest gains in another property or specified bonds to avoid tax liability.