Govt eyes higher capital gains tax for top income earners to curb inequality: Report

Potential increase in capital gains tax is likely for top income earners as part of Modi government's overhaul of direct tax laws to curb widening inequality, said a report on Tuesday.

While India levies a tax of as much as 30% on income, it taxes gains on certain asset classes such as equity funds and stocks at a lower rate. 

"A panel may be appointed to build on proposals submitted to the Finance Ministry in 2019 with an eye to implement in 2024, though no final decisions have been made," reported Bloomberg citing sources. 

With a new direct taxes code, the government is also looking to replace India’s complicated tax system with a simpler law to draw in companies looking to shift their operations out of China amid growing tensions between Washington and Beijing. More importantly, it could help burnish India’s credentials as an investment destination after companies such as Vodafone Group Plc and Cairn Energy Plc challenged tax decisions in courts in the past, the report added.

The levy would apply to equity shares of a listed company, unit of an equity oriented fund and unit of a business trust. These assets must have been held for a minimum period of 12 months from the date of acquisition.

India’s reliance on indirect taxes — levies on consumption — rather than direct taxes on capital is often cited by economists as the main culprit behind the country’s poor getting left behind.

Under the Income Tax Act, gains from sale of capital assets -- both movable and immovable -- are subject to 'capital gains tax'.

The Act, however, excludes movable personal assets such as cars, apparels and furniture from this tax.

Depending upon the period of holding an asset, the long-term or short-term capital gains tax is levied.

With inputs from agencies