The capital gains tax structure needs an 'absolute relook' as it is too complicated at present, revenue secretary Tarun Bajaj said on Wednesday.
“For real estate, we have made it (holding period for LTCG taxation) 24 months; for shares, we have made it 12 months; for debt funds, it is 36 months. So, we really need to work on that," he said at a post-budget event organised by Confederation of Indian Industry (CII).
Bajaj invited suggestions from business leaders on ways to simplify capital gains taxation.
"This is work in progress and I would need your views. We have studied how the taxation works in emerging and developed economies. The problem is any change in rules will result in some winners and losers," he said.
The capital gains tax applicable on mutual fund investments depend on whether the scheme is equity oriented or debt.
LTCG (long-term capital gains) on equity funds is realised when they are sold after a holding period of at least 12 months. The LTCG tax rate on equity funds is 10% post gains of Rs.1 lakh, whereas short-term capital gains (STCG) are taxed at a flat rate of 15%. Currently, government does not levy any tax on LTCG of up to Rs. 1 lakh in a financial year.
For debt funds, if the MF holding is sold within three years of purchase, STCG is realised and taxed at slab rates. LTCG on debt funds is taxed at 20% after indexation, which allows taxpayers to adjust the purchase price of the asset as per inflation.
