Finance Minister Nirmala Sitharaman presented the Union Budget 2022 on Tuesday. She announced that the surcharge on the long-term capital gains (LTCG) has been capped at 15 per cent.
Market participants were expecting some relief in long-term capital gains. Continuation of LTCG tax along with other transaction taxes - like STT, stamp duty - have already affected investors' confidence.
Saurrav Sood, Practice Leader, International tax, SW India explained that the rate of long-term capital gains vary between 10 to 20 per cent depending upon the type or class of assets. The mentioned rate of long-term capital gain tax increases by applicable surcharge which is chargeable at 37 per cent in case of an individual having capital gains of more than Rs 5 crore during the year.
He added that for capital gains more than Rs 2 crore but up to Rs 5 crore, the surcharge rate is 25 per cent. Further, in the case of companies, the maximum applicable rate of surcharge is 12 per cent where such capital gains are more than Rs 10 crore during the year. Now, to promote long-term investments in equity of start-up, the rate of surcharge has been capped at 15 per cent, irrespective of the amount of long-term capital gains.
“This is beneficial for the individual investors who are holding shares for more than 12 months and selling them thereafter, thus treating gains on the sale of such shares as long-term capital gains. Further, the beneficial rate of the surcharge shall also apply to an Association of Persons (AOP),” he noted.
"Thus, where such shares are held for less than 12 months, they will be taxable as short-term capital gains and the rate of surcharge will apply as is i.e. the highest rate to go up to 37 per cent depending upon the quantum of gains derived. It will be interesting to see the fine print of finance bill i.e. whether such benefit is restricted to only equity shares or is extended to all class of long term capital assets," he further added.
Speaking on the LTCG announcement, Abhay Agarwal, founder, Piper Serica said that this is quite a remarkable benefit for High Networth Individuals (HNIs) as this surcharge is as high as 37 per cent currently depending on their specified income. Though the devil is in the details, this should also help entities like AIFs that are taxed for a surcharge based on their specified income category.
"This will reduce the tax liability for HNIs across the board. We expect to see HNI's with the highest specified income slab of more than Rs 5 crore push out booking of LTCG to next financial year to benefit from this change.
"LTCG on listed equity and mutual funds with a higher allocation to listed equity is currently capped at 15 per cent, but surcharges on other assets or unlisted equity are based on total income earned by the individual in a financial year. The Finance Minister has now recommended a 15 per cent ceiling on all LTCG. This is beneficial for investors who invest primarily in unlisted equities, where they pay greater taxes; however, the fine print may clarify whether this applies to other asset classes as well," Ashis Sarangi, SEBI regd RIA, Pickright Technologies told BusinessToday.in.
Rajesh Agarwal, Head of Research, AUM Capital Market said that presently surcharge on long-term capital gains is on listed shares and the equity fund is capped at 15 per cent but for LTCG on other Asset Classes, the surcharge is based on total income. Now, the Finance Minister has proposed a cap on all LTCG, this will be a big beneficiary for start-ups and unicorns.
"The decision to cap the long-term capital gains surcharge at 15 per cent is a much better stance to ensure the desired revenue and the saving from the larger perspective. Assesses would be able to define the saving horizon by this capping and it is a welcome for all," said Amit Gupta, MD, Sag Infotech.
LTCG tax accrued from selling equity shares and equity-oriented mutual funds was proposed in Budget 2018. The LTCG tax plus cess, without indexation benefits, is applicable at a rate of 10 per cent on gains over and above Rs 1 lakh in a financial year.
The long-term capital gains are computed by deducting the cost of acquisition from the full value of consideration on the transfer of the long-term capital asset.
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