Tax Reforms

Government seeks suggestions of long-term capital gains clause


Mains Paper 3: Economy | Mobilization of resources

From UPSC perspective, the following things are important:

Prelims level: Income Tax Act, long-term capital gains tax, security transaction tax

Mains level: Recent provisions to increase revenue sources and reduce tax avoidance

LTCG tax review

  1. The government has opened for public discussion its proposed clause in the Income Tax Act
  2. It would give the government the power to specify the applicability of the long-term capital gains tax and the security transaction tax

About LTCG tax

  1. The Finance Act 2018 had introduced section 112A in the Income Tax Act, to provide that long-term capital gains arising from the transfer of a long-term capital asset, if it is an equity share in a company, be taxed at 10% of the value of the gains exceeding Rs 1 lakh
  2. The section provides that the provisions of the section shall apply to the capital gains arising from a transfer of long-term capital asset being an equity share in a company, only if securities transaction tax (STT) has been paid on the acquisition and transfer of such capital asset


Security transaction tax

  1. STT is levied on every purchase or sale of securities that are listed on the Indian stock exchanges
  2. This would include shares, derivatives or equity-oriented mutual funds units
  3. The rate of tax that is deducted is determined by the central government, and it varies with different types of transactions and securities
  4. STT is deducted at source by the broker or AMC, at the time of the transaction itself, the net result is that it pushes up the cost of the transaction done
  5. STT was introduced in the Budget of 2004 and implemented in Oct 2004
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