The government is considering changes in the capital gains tax regime in order to make it simpler. The changes proposed in the regime are from the direct tax task force report of 2019. Among the proposed changes in the regime is rationalisation of holding periods.
For the uninitiated, capital gains tax is the government-determined tax paid on the profit from the sale of an asset.
A capital asset is an asset you own, including bonds, stocks and property. The sale of a capital asset can result in capital gain or capital loss. While you must pay capital gains tax, losses can be used to reduce the tax amount.
The capital gains tax regime is complex due to a variety of reasons. Aside from prescribing differing rates of tax based on the holding period, the regime also describes different asset classes. The benefit of indexation is also different for different types of assets.
Under the current regime, capital gains are classified as long term and short term, based on the holding period. A capital asset held for up to 36 months is considered as a short-term capital asset while a capital asset that is held for more than 36 months is considered as a long-term capital asset.
Real estate is an exception to this rule— since FY 2017-18 an immovable property held for over 24 months (two years) is considered as a long-term capital asset. Another exception are equities and preference shares, equity-based mutual funds, zero coupon bonds and UTI units. These will be considered long-term assets if held for over 12 months.
“The capital gains tax regime is slightly complex. There is a case for simplifying and rationalising it,” an official aware of the matter told the Economic Times.
