Capital Gains Tax: Govt Earned Nearly Rs 99,000 Crore from Listed Equities in 2022-23

The NDA government has reported a significant increase in revenue from long-term capital gains (LTCG) tax on listed equities, with collections reaching Rs 98,681 crore for the fiscal year 2022-23. This marks a notable 15% growth compared to the Rs 86,075 crore collected in the previous fiscal year, according to Minister of State for Finance Pankaj Chaudhary, who addressed the Rajya Sabha on Tuesday.

Historical LTCG Tax Collections

Chaudhary also shared historical data on LTCG tax collections since its implementation in April 2018, when gains from equities and equity-oriented mutual funds became subject to a 10% tax rate, with annual gains up to Rs 1 lakh being exempted. The revenue trend over the years is as follows:

• 2022-23: Rs 98,681.34 crore
• 2021-22: Rs 86,075.49 crore
• 2020-21: Rs 38,589 crore
• 2019-20: Rs 26,008 crore
• 2018-19: Rs 29,220 crore

Overview of Capital Gains Tax

Capital gains tax is levied on profits earned from the sale of capital assets such as stocks, mutual funds, real estate, and gold. The tax rate varies based on the asset type and the holding period.

Recent Changes in Capital Gains Tax Structure

In the Union Budget presented last week, Finance Minister Nirmala Sitharaman announced significant changes to the capital gains tax structure, aimed at simplifying the tax regime:

• Uniform LTCG Tax Rate: A flat rate of 12.5% for all asset classes, replacing the previous tiered system.
• Increased STCG Tax Rate: The short-term capital gains (STCG) tax rate on equity-related investments was raised from 15% to 20%.
• Higher Tax-Free Limit: The tax-free limit for LTCG on equity investments increased from Rs 1 lakh to Rs 1.25 lakh.
• Extended Holding Period: The holding period for listed securities to qualify as long-term investments was extended from 12 months to 24 months.
• Removal of Indexation Benefit: The indexation benefit, which adjusted the purchase price of an asset for inflation, was eliminated.

Impact on Property Transactions

The revised tax policy also altered the treatment of LTCG in property transactions by eliminating the indexation benefit, leading to substantial modifications in the calculation of long-term capital gains.

These changes reflect the government's efforts to streamline the capital gains tax regime and enhance revenue collection, while potentially impacting the investment strategies of taxpayers across various asset classes.