Income tax change: LTCG surcharge capped at 15%. What it means for taxpayers

 








The surcharge on the long-term capital gains (LTCG) has been capped at 15% as announced by Finance Minister Nirmala Sitharaman in her Budget 2022 speech on Tuesday. The rate of long term capital gains vary between 10% to 20% depending upon the type or class of assets. Currently, LTCG surcharge is available only for listed shares and units of mutual funds.

Presently surcharge on long term capital gains is on listed shares and equity fund is capped at 15% but for other LTCG, the surcharge is based on total income. Now, the Finance Minister has proposed cap on all LTCG," explained Tax expert Balwant Jain.

The mentioned rate of LTCG increases by applicable surcharge, which is chargeable at 37% in case of an individual having capital gains of more than ₹5 crore during the year.

For capital gains more than ₹2 crore, but upto ₹5 crore, the surcharge rate is 25%. Further, in case of companies, the maximum applicable rate of surcharge is 12%, where such capital gains are more than ₹10 crore during the year.

“In order to promote long term investments in equity of start-up, the rate of surcharge has been capped at 15%, irrespective of amount of long term capital gains. This is beneficial for the individual investors who are holding shares for more than 12 months and selling it thereafter, thus to treat gains on sale of such shares as long term capital gains," said Saurrav Sood, Practice Leader, International tax, SW India.

Further, the beneficial rate of surcharge shall also apply to an Association of Persons (AOP). Thus, where such shares are held for less than 12 months, they will be taxable as short term capital gains and the rate of surcharge will apply as is i.e. the highest rate to go upto 37% depending upon the quantum of gains derived, explained Sood.

It will be interesting to see the fine print of finance bill i.e. whether such benefit is restricted to only equity shares or is extended to all class of long term capital assets," he added.

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