LONG TERM CAPITAL GAINS TAX - ECONOMY
News: Government
scraps long-term tax benefit for debt mutual funds investing less than 35%
assets in equity
What's in the news?
● The
Government has scrapped the long-term
capital gains treatment (with indexation benefits) for income from debt mutual
funds and other schemes that invest upto
35% in equity shares of domestic companies.
Key takeaways:
● The
returns from such funds will now be treated as short term capital gains.
● Currently,
capital gains arising from transfer of mutual fund units, other than
equity-oriented funds held for more than three years, are considered as
long-term investments and taxed at 20% with indexation benefits.
Capital Gains Tax:
● Capital
Gains Tax is levied on the profits made
on investments.
● It
covers real estate, gold, stocks, mutual
funds and various other financial and non-financial assets.
● It
is divided into long-term capital gains tax (LTCG) and short-term capital gains
tax (STCG)
● Unlike
income tax, the percentage of tax does not change on the basis of your overall
tax slab.
● The
LTCG tax, excluding surcharge, on equity is the same for gains of ₹10 lakh or
₹10 crore.
● There
is also a separate set of deductions that apply to LTCG, which do not apply to
ordinary income.
What happens to inherited properties?
● According
to the Income Tax Act, if a person inherits property and does not sell it, no
capital gains tax is required.
● However,
if the person who inherited the property decides to sell it, he or she will
have to pay tax on the earnings.
Long Term Capital Asset:
● Individuals
who own a capital asset for more than 36
months have a long-term capital asset.
● Debt-oriented
mutual funds, jewellery and other investments held for more than 36 months are
included in this category; there is no 24-month reduction period in these
circumstances.
● Any
of the assets listed below are considered long-term investments if you own them
for more than a year:
○ Zero-Coupon
Bonds
○ Equity-based
mutual funds
○ Securities
○ Preference
shares or stocks
○ Units
of the Unit Trust of India.
Short Term Capital Asset:
● When
assets are held for less than 36 months,
they are classified as short-term capital assets.
● The
term for immovable assets, such as
real estate, buildings, and land, has been decreased from 36 to 24 months.
Is cryptocurrency taxed as capital gains?
● The
2022 budget has proposed a 30% tax on
cryptocurrency, which is higher than capital gains tax in many cases.
● Besides,
under capital gains tax, investors can adjust profits and losses on different
investments against each other or against profits/losses in the future.
● However,
this cannot be done with cryptocurrency.