The Modi government is preparing for major changes in the capital gains tax system. This change is being done with the aim of increasing revenue collection for more expenditure in welfare schemes. Two government officials aware of the matter have given this information.
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According to an official, a proposal in this regard is being studied in the Finance Ministry. The government’s logic behind this is that passive income earned from the capital market should not be taxed less than the income from business.
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This involves entrepreneurial risk and has an impact on job creation. It also contains the government’s idea of welfare which requires increasing revenue. An official says legislative changes are needed to make the capital gains tax system more affordable. It may take till the next budget.
There are two types of capital gains tax
At present, two types of capital gains tax are in vogue in the country. This includes long-term capital gains (LTCG) and short-term capital gains. In the current system, equity investment of more than one year duration is called LTCG and equity investment of less than one year duration is called STCG. The period of LTCG in case of assets is 36 months.
Study of tax system of other countries
The official says that we have also studied the capital gains tax system of other countries and we cannot be different from it. The government estimates that the long-term capital gains tax in many countries ranges from 25 to 30 percent, or at par with the applicable income tax rate.