Capital gains tax in India vs worldwide: How does India compare with other countries?

Capital gains tax in India depends on the type of asset, the holding period and the nature of the taxpayer. While listed equity and equity-oriented mutual funds have separate tax rates, gains from other assets can be taxed differently. Globally, capital gains taxation varies widely, with some countries imposing no standalone capital gains tax and others taxing gains at rates of 30% or more.

India’s capital gains tax framework

Section 45 of the Income Tax Act, 1961, lays down the general rule that profits or gains arising from the transfer of a capital asset are taxable in the year in which the transfer takes place, unless a specific provision provides otherwise.

Capital gains are broadly classified as short-term capital gains (STCG) and long-term capital gains (LTCG) based on the applicable holding period.

For listed equity shares and equity-oriented mutual funds, STCG on transfers covered by the securities transaction tax (STT) framework is generally taxed at 20%. LTCG on such assets is taxed at 12.5% on gains exceeding the annual exemption threshold of ₹1.25 lakh.

For many other long-term capital assets, the LTCG rate is 12.5% without indexation for transfers made on or after July 23, 2024. For certain immovable property acquired before July 23, 2024, resident individuals and HUFs have a grandfathering option to compare the tax under the earlier 20% indexed regime with the new 12.5% regime.

The law also contains specific provisions under Section 45 covering situations such as insurance compensation, ULIPs, conversion of capital assets into stock-in-trade, compulsory acquisition, joint development agreements and reconstitution of firms.

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How capital gains tax rates vary worldwide

There is no uniform global approach to taxing capital gains. The PwC Worldwide Tax Summaries matrix in the accompanying chart compares headline statutory rates across territories and distinguishes between corporate and individual taxation.

Some jurisdictions have no standalone comprehensive capital gains tax. The chart identifies Hong Kong SAR, Singapore, the Cayman Islands and New Zealand among territories where there is no standalone CGT framework, although other taxes or rules can apply depending on the transaction.

At the other end of the spectrum, headline individual rates can be substantially higher. The chart shows 45% for Korea as the highest cited individual headline rate in its matrix, while countries such as France, Japan, Denmark and the United States have headline rates or structures that can result in significant taxation of investment gains.

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The comparison also shows that some countries do not have a separate capital gains tax line but instead tax gains through their normal corporate or personal income-tax systems.

Capital gains tax rates

*The treatment of capital gains in the US varies by asset, holding period and taxpayer circumstances.

Why headline rates need context

A simple comparison of headline rates can be misleading. Countries differ in their treatment of holding periods, asset classes, exemptions, participation exemptions, inflation adjustments and non-resident withholding taxes.

For example, the chart notes that Canada includes 50% of a capital gain in taxable income, rather than simply applying a standalone CGT rate to the entire gain. Japan has different rates depending on the asset type, while South Africa uses an inclusion-rate mechanism.

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Therefore, India's 12.5% LTCG rate for several asset classes cannot be compared directly with every country's headline rate without considering how the underlying tax system calculates taxable gains.