Budget 2023: Revenue dept in favour of further simplification of capital gains tax provisions

FM Sitharaman holding pre-budget consultations with capital market experts on Nov 22, 2022 (Image: Twitter@FinMinIndia)

The Union Ministry of Finance's Revenue Department is studying the provisions of capital gains tax and is in favour of further simplifying them, sources told CNBC TV-18 on November 23.

The department is of the view that a further simplification of capital gains tax is "possible", and the measure could provide ease of compliance and "cleaning up" of the complex law, the persons privy to the development told the news channel.

The department wants to remove disparity between several financial instruments which fall under similar categories, the sources further added.

Capital gains tax, as per the Income Tax Act, is levied on the gains made through the sale of movable and immovable capital assets.

The proposal of amendment, which is under consideration, says that there should be three broad categories of assets - equity, non-equity financial and non-financial, CNBC TV-18 reported.

As per the proposal, the special treatment for equity assets should be continued. However, the disparity of rates and holding period for both short term and long term for non-equity financial assets should be removed, it reportedly suggested.

Currently, long-term equity or equity-linked mutual funds, held for over a year's period, attract a 10 percent tax on gains that exceed Rs 1 lakh. Equity investments of up to one year fall under short-term, and draw a tax of 15 percent.

Debt-oriented investments and immovable property, held for a minimum of three-year and two-year period, respectively, are considered as long-term and a tax of 20 percent is levied on the gains.

The amendment proposal also includes a revision in the indexation base of non-financial assets from the current 2001 base year to a more recent year, the CNBC TV-18 report added.

The sources who are aware of the discussions said that if the amendments are approved, they could be announced as part of the Union Budget 2023-24, which would be rolled out on February 1, 2023.

The report comes a day after Finance Minister Nirmala Sitharaman held pre-budget consultations with experts from the financial sector and capital markets in New Delhi.