Why retail investors want to see a change in the capital gains tax regime
Long-term capital gains (LTCG): Profits from the sale of equity shares held for more than 12 months are classified as LTCG. But the same for land or real estate transactions are considered LTCG if the holding period is 24 months. LTCG, from the sale of equity exceeding ₹1 lakh in a fiscal year, is taxed at 10% without indexation benefit.
For other assets, LTCG is taxed at 20% with indexation benefits. Short-term capital gains (STCG): Capital gains not classified as LTCG are automatically considered STCG. STCGs from equity shares and equity-linked mutual funds are taxed at a flat rate of 15%, while other STCGs are taxed at the normal tax rates applicable to the taxpayer.
While the rules for the taxation of capital gains may seem straightforward, the practical application of the capital gains tax is far more complex. Recent revisions in the taxation of debt instruments—such as debt funds, market-linked debentures, and hybrid debt funds—have not only complicated the interpretation of the law but also increased the risk of errors that could lead to interest, penalties and prolonged litigation. These complications, along with the reintroduction of tax on LTCG, have left the investors appealing to the government for relief and the rationalization of the capital gains tax regime.
While most developed and developing nations tax capital gains, specific financial hubs like Singapore and Hong Kong do not levy capital gains tax to attract global investors. India's approach is more complex than some countries' relatively straightforward systems but is deemed suitable for its economic ecosystem. Indian retail investors argue that aligning the capital gains tax regimewith international standards could enhance India's competitiveness as
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