Finance Minister Nirmala Sitharaman may give capital gains tax rejig a miss this year

A review and possible simplification of the capital gains tax regime is unlikely for now and the Union Budget 2024-25 may give the proposal a miss. While industry and experts have been pitching for a comprehensive review and rationalisation of the capital gains tax regime across different asset classes, sources indicated that the government is not keen on undertaking such an exercise for now and to disturb the current classification.

“It is a massive exercise, which will have an impact across different asset classes and investments. While there has been demand for it over the last few years, it is not being planned for now and may be taken up at a later date,” noted a person familiar with the development. The impact of such a rationalisation exercise on tax collections as well as the overall direct tax regime would also have to be assessed and it would require a thorough review.

At present, capital gains tax is levied on long term as well as short term basis depending on the holding period, which also varies for different asset classes. The tax is levied on capital assets including shares, mutual funds and property.

According to sources, while the issue has been raised at pre-Budget discussions with Finance Minister Nirmala Sitharaman, the Budget may not feature any proposal on this.

Industry body FICCI in its pre-Budget recommendations called for simplification of the capital gains tax regime in terms of two or three broad buckets of different types of assets, holding period for such assets to turn long term, indexation benefit eligibility, LTCG tax rate and STCG tax rate for such assets without distinction between residents and non-residents. “Indicative broad buckets could be equity instruments debt instruments and other assets,” it said.

EY India has also called for simplification of the capital gains tax regime. “Government is conscious of the complexity in capital gains tax structure. At present, there is no consistency in tax rates or holding period for different types of instruments falling within same asset class. Even the indexation benefit differs in different situations,” it had said in a note, adding that an indication about a simplified capital gains tax regime may be expected.