Capital Gains Tax Simplified: Industry Demand Met in FY25 Budget

New Delhi, Jul 26 (PTI) Revenue Secretary Sanjay Malhotra on Friday said the rationalisation of the capital gains taxes on various asset classes in the FY25 Budget is a tax simplification measure as sought by the industry and not to augment revenue.

Addressing members of the industry chambers CII and Assocham, he wanted to know if the industry was in favour of having different tax rates for different asset classes.

The FY25 Budget has rationalised the holding period for various asset classes for short- and long-term capital gains tax. The holding period for all listed assets has now been made one year for long-term capital gains tax (LTCG). For unlisted shares, debentures and real estate, the holding period for LTCG is two years.

In terms of rates, LTCG tax has been rationalised at 12.5 per cent for all asset classes without the benefit of indexation. Earlier, the rate was 20 per cent for all asset classes except STT-paid equities. For real estate, it was 20 per cent with indexation.

Malhotra said the changes in "capital gains tax is a simplification measure and not a revenue augmentation measure. Yes, there is a revenue increase, but that is very, very marginal. It is a simplification exercise which all of you (industry) asked for".

The revised LTCG tax structure has removed tax arbitrage for various asset classes.

Stating that the virtues of simplification lie in lowering compliance burden, the Secretary said simplification does not mean that tax incidence will go down in every case, and a taxpayer will benefit in every aspect, be it holding period or the lowest rates.

"Well, that will not happen because ultimately the Government needs revenues. So, while you are asking for simplification,... then let's also be prepared that some things will go up and some things will go down. But simplification has its own virtues...," Malhotra said.

He asked the industry whether the incidence of tax should be different on gains made from selling shares and gains made from selling debentures or real estate properties held for the same duration.

"This question, I put to you and think yourself. Should the tax on these two asset classes or any other asset class be different?" Malhotra said.

The LTCG tax on equities previously was 10 per cent with the exemption of income up to Rs 1 lakh. The FY25 Budget has hiked the rate to 12.5 per cent -- bringing it at par with other asset classes. The exemption limit was also increased to Rs 1.25 lakh per annum.

Malhotra further said that in the pre-budgeted memorandum, CII had sought two two tax rates on long-term capital gains, but the Budget has rationalised the regime further by bringing in only one rate of tax.