The government will likely simplify the capital gains tax regime to align the tax rates and holding period across the asset class in the upcoming Budget, a senior official said on Tuesday.

The official said the current capital gains tax structure is ‘complicated’.

Currently, the long-term capital gains tax (LTCG) is more benign on listed shares, while other types of assets, including real estate, attract the tax at higher rates, the taxpayers have to hold these for longer periods to escape the higher short-term taxes.

“We need to re-look at the capital gains tax structure in terms of the rates and the holding periods. We would be open to modifying the structure,” the official said. “We are looking at the suggestions that have come in from stakeholders.”

The holding period for long-term capital gains tax is more than 12 months for listed shares/debt securities, while it is more than 24 months for unlisted shares and real estate, and 36 months for debt mutual funds and securities.

Analysts are hopeful that the tax rejig could lower the tax incidence on gains arising out of the sale of unlisted equity shares, units of real estate investment trusts and perhaps even debt funds.

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Long-term capital gains tax (LTCG) on listed shares is 10% on the gains exceeding Rs 1 lakh without indexation benefit while short-term gains are taxed at 15% (STCG), for both domestic and foreign investors. The LTCG is 20% on unlisted shares for domestic investors and 10% for non-residents while the STCG is payable at the applicable slab rate of the individual concerned. Similarly, STCG on debt funds is as per tax slab rates of the individual while LTCG is 20% with indexation benefit.

Stakeholders have been seeking parity between listed and unlisted stocks when it comes to the periods of holding. There is also the issue of higher tax rates for the short-/long-term capital gains concerning unlisted shares vis-a-vis listed shares.

The last time the government tinkered with the capital gains tax regime was in the Budget for FY19, when it reintroduced LTCG on listed shares. A surge in capital market transactions in the last two years has garnered the government a substantial amount of tax revenues through capital gains tax.