Budget 2020: Finance Minister Nirmala Sitharaman is likely to announce heavy-duty measures in Union Budget 2020 to rationalise key equity taxes.
FM Sitharaman who will present her second budget on February 1 is expected to scrap capital gains on the sale of property, extend the time frame of long-term capital gains (LTCG) tax from the present 12 months to 24 months and shift the tax liability of dividend distribution tax (DDT) from companies to shareholders.
The removal of capital gains on the sale of property, if it comes through can help revive the beleaguered real estate sector. The industry which is in the doldrums and is already facing a lot of stress has high hopes from budget 2020.
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Presently, a property holder has to pay 30% capital gains on the sale of property, if he/she doesn't re-invest it back in property within three years.
However, if the property holder sells his/her property within 24 months, then he/she is required to pay a short-term capital gains (STCG) tax on the gains made according to his/her income-tax slab.
The individual has to pay a 20% LTCG tax (with indexation benefits) after 24 months.
LTCG on equity
FM Sitharaman is also likely to push the time frame of LTCG on equities to 24 months from the current 12 months. Presently, domestic investors have to a 20% LTCG if they hold equity for 12 months (10% for non-residents).
The LTCG was introduced in the 2018 Budget with a tax of 10 per cent on profits made above Rs 1 lakh on selling equity shares and mutual funds.
Dividend Distribution Tax (DDT)
FM Sitharaman is also expected to tax the shareholders directly on dividends by shifting the tax liability from the company to the shareholders.
India currently levies a dividend distribution tax at an effective rate of 20.56 per cent on the company declaring dividends. This is over and above the corporate tax that companies pay on their taxable profits.
Apart from this, resident non-corporate taxpayers (Individuals, Hindu Undivided Families or a firm) need to pay a 10 per cent tax on dividends in excess of Rs 10 lakh a year. Hence, the effective tax rate becomes much higher.