Scaling down capital gains from holding of equity shares or units of equity funds for more than one year will be done at a fixed percentage and the balance will be taxed at the respective personal income tax rate, the finance ministry clarified on Friday.
The deduction will ensure that tax on capital gains from relatively longer holdings will be rather benign. The gains from assets held for less than one year will be treated as ordinary income, and taxed at the rate applicable to each taxpayer. The clarification came in the context of an illustration in the discussion paper of deductions at different rates and the effective tax rates that will result in, for taxpayers in three different marginal rates, 10%, 20% and 30%. ?That was just as illustration. The (deduction) rate would only be one,? said an official.
Revenue secretary Sunil Mitra said no decision has been taken on the rates of corporate tax or personal income tax in the code. ?We have been reducing tax rates for the last few years. This has helped increase compliance and expand the tax base, as is reflected in the improved direct tax-to-GDP ratio,? he said.
?We will decide on securities transaction tax (STT) once long-term capital gains are calibrated. Whether we do away with the STT and the tag on capital gains tax, we will decide later,? said SSN Moorthy, chairman, Central Board of Direct Taxes.
Talking about the industry?s concern over denial of profit-linked incentives to units to come up in special economic zones in the future, Mitra said the government is in favour of exports and trade but too many exemptions may hurt revenue. He also added that at the moment there was no consideration in this regard. Profit-linked incentives are being replaced by investment-linked ones as a matter of policy.