Income from capital gains as reported by taxpayers rose sharply in the assessment year 2022-23 (financial year 2021-22), immediately after the pandemic, data released by the income tax department showed.
According to the data, income reported as long-term capital gains surged 132% year-on-year to Rs 8.20 trillion and short-term capital gains 43.2% to Rs 2.23 trillion in AY23. The aggregate income reported from capital gains skyrocketed 105.3%. In the previous assessment year (AY22), the year-on-year rise in aggregate income from capital gains was 89%.
The sharp rise in income from capital gains during FY22 is in sync with the rise in household investments in physical assets, shares and debentures, and mutual funds. According to the statistics ministry data, households’ investments in physical assets soared 39%, in shares and debentures 100%, and in mutual funds 151% year-on-year.
Capital gains tax is the levy on profits earned from the sale of capital assets such as real estate, stocks, mutual funds, and other investments. In India, these gains are categorised into short-term and long-term gains, each attracting a different tax rate. Short-term capital gains apply to assets held for less than 36 months and are taxed at the individual’s applicable tax slab. In contrast, long-term capital gains are for assets held for 36 months or more and are taxed at a flat rate, often with the benefit of indexation for certain types of assets.
However, in respect of certain assets like shares (equity or preference) which are listed in a recognised stock exchange in India, units of equity-oriented mutual funds, listed securities such as debentures and government securities, the period of holding to be considered for short-term capital gains is 12 months instead of 36 months.