Fastest growing income class, deserves to be taxed at higher rate: TV Somanathan on raising capital gains tax

Finance Secretary defended the move to raise capital gains tax stating it is with the purpose of rationalisation.

The government hiked capital gains tax in Budget 2024-25 calling it a move to streamline and further simplify its structure and bring parity among different asset classes.

Speaking at a post-Budget discussion with BusinessLine, finance secretary TV Somanathan said that the capital gains is the fastest growing income class in India and it deserved to be taxed at a higher rate with the goal of increasing revenue for government and also equity and fairness.

Elaborating on this further, the finance secretary said that raising the taxes on capital gains is fair as not hiking it would have been discriminatory towards those who earn their income through other means. He added that it is his personal opinion and not necessarily that of the government.

Finance minister Nirmala Sitharaman raised long-term capital gains tax to 12.5 percent and short-term capital gains tax to 20 percent in Budget 2024-25.

Somanathan further said that the capital gains tax, even after the hike, is low comapred to some of the developed economies. He added that India cannot hope to have a world class capital market without a reasonable capital gains tax.

Finance minister Nirmala Sitharaman, in a post-Budget discussion with CNBC-TV18, had said that the purpose of the hike in capital gains tax is not to get more money but to treat every asset class equally.

She added that she is ready to accept changes in Finance Bill but it rests with Parliament now.

Speaking to moneycontrol post Budget, Somanathan had said that the move came as there was a rising clamour to simplify capital gains tax structure and rationalistaion should not be construed as reduction only.

"Now, we have a simple regime. It’s 12.5 percent without indexation across all asset classes, and the period of retention is one year for all listed assets, including REITs and INREITs, and the period of retention for all other non-listed assets, including gold and property, is two years. So, there is uniformity; it’s a much simpler structure."

Somanathan said, "Earners of capital gains are not poor and we will keep taxing them at a decent rate."