The Ministry of Ports, Shipping and Waterways has approved the project proposal for setting up a Major Port at Vadhavan, Palghar District of Maharashtra.
About Vadhavan Port Project
The project involves the development of core infrastructure, terminals, and other commercial infrastructure through a public-private partnership (PPP) mode.
The shareholding for the project is divided between the Jawaharlal Nehru Port Authority (74%) and the Maharashtra Maritime Board (26%).
The project aims to create a total capacity of 298 million metric tonnes per annum (MMTPA).
The port will accommodate mainline mega vessels operating on international shipping routes connecting the Far East, Europe, the Middle East, Africa, and America.
Existing Major Ports in India
India has 12 Major Ports: Chennai, Cochin, Deendayal (Kandla), Jawaharlal Nehru (Nhava Sheva), Kolkata, Mormugao, Mumbai, New Mangalore, Paradip, V.O. Chidambaranar (Tuticorin), Visakhapatnam, and Kamarajar Port Limited.
Private Sector participation is allowed in Major Ports for specific projects/berths/terminals through concession agreements for a specific period via open competitive bidding on revenue share/royalty between the Concessionaire and the Major Port Authority.
After the expiry of the concession period, the asset is handed over to the Port Authority.
Significance of Major Ports
Major ports play a critical role in facilitating international trade and commerce.
They serve as gateways for the import and export of goods, significantly contributing to the country’s economy.
Ports generate substantial revenue for the government through customs duties, port fees, and other related charges.
Ports facilitate international collaboration and partnerships, enhancing diplomatic and trade relations with other countries.
PYQ:
[2016] Recently, which of the following States has explored the possibility of constructing an artificial inland port to be connected to sea by a long navigational channel?
The Union Budget for 2024-25 announced that “a policy will be introduced to promote pumped storage projects aimed at electricity storage and ensuring the seamless integration of the increasing share of renewable energy.
Why is renewable power generation subject to variations and weather changes?
Due to Intermittent nature: Renewable energy sources, particularly solar and wind, are inherently intermittent. Solar energy is only available during daylight hours and is affected by weather conditions such as cloud cover, while wind energy varies with wind speed and direction. This variability leads to fluctuations in power generation, making it challenging to match supply with demand consistently.
Daily and Seasonal Variations: The generation capacity of renewable sources can change significantly over short periods (hours to days) and longer periods (seasonal). For instance, solar power generation peaks during sunny days and drops to zero at night, while wind power can vary greatly depending on seasonal weather patterns.
Significance of Pumped Storage Projects
Grid Stabilization: Pumped storage projects are critical for stabilizing the power grid by addressing the variability and intermittency of renewable energy sources like solar and wind.
Energy Storage Capacity: PSPs account for over 94% of the installed global energy storage capacity, making them the most widely used technology for large-scale energy storage.
Flexible Energy Generation: These projects can provide both base load and peaking power, offering flexibility in energy generation.
Environmental Benefits: Pumped storage is a clean and environmentally friendly technology.
Economic Viability: The cost of energy from pumped storage is competitive compared to other energy storage technologies.
How do Power Managers decide which energy source to use?
Use of forecasting Techniques: Power managers utilize advanced forecasting techniques to predict renewable energy generation based on expected weather conditions. This allows them to plan the operation of different power plants in advance, ensuring a steady supply of electricity.
Demand and Supply Management: Decisions on which energy source to use are based on real-time demand and the availability of renewable energy. When there is a surplus of renewable energy (e.g., during sunny or windy periods), it may be used to pump water in pumped storage systems. Conversely, when renewable generation is low, power managers may rely on more stable sources like hydro, coal, or nuclear power to meet demand.
Where are some of the Pumped Storage Projects of India situated?
Kadamparai: Located in Tamil Nadu, this facility has a capacity of 400 MW and operates by pumping water to a higher reservoir during periods of surplus power generation.
Other Notable Projects: India has several other pumped storage projects, including those at Nagarjunasagar, Kadana, and Panchet. These facilities contribute to managing the variability of renewable energy generation in the country.
How do the reservoirs in Kadamparai, Tamil Nadu operate?
The Kadamparai pumped storage plant consists of two reservoirs at different elevations. Water is pumped from the lower reservoir to the upper reservoir when there is surplus power available, typically from solar or wind sources.
When demand rises, especially during peak evening hours, water flows from the upper reservoir to the lower reservoir, turning turbines to generate electricity. This operation allows the plant to provide power for three to four hours during peak demand periods, effectively stabilizing the grid.
The plant can switch between pumping and generating modes, allowing it to respond quickly to changes in power demand. This flexibility is crucial for integrating variable renewable energy sources into the grid.
Conclusion: The need to Develop a robust and flexible grid infrastructure that can efficiently handle the integration of renewable energy sources is crucial. Implementing smart grid technologies, including real-time monitoring, advanced forecasting techniques, and automated demand-response systems, can optimize the balance between supply and demand.
The Union Food and Consumer Affairs Minister announced that States can now directly purchase rice from the Food Corporation of India (FCI) under the Open Market Sale Scheme (Domestic) without participating in e-auctions.
Key Announcements:
Direct Rice Purchase of Rice by the States:
States can procure rice directly from FCI at ₹2,800 per quintal (excluding transportation cost), down from the earlier rate of ₹2,900 per quintal.
Recent reports suggest that the government might reduce or discontinue the Sovereign Gold Bond (SGB) scheme due to its high cost.
Decline in Popularity of SGB:
This speculation follows the Union budget’s decision to slash customs duties on gold and silver from 15% to 6%.
The reduction in customs duties is expected to decrease demand for SGBs, which has already led to a 2-5% drop in their prices on the National Stock Exchange (NSE).
About Sovereign Gold Bonds (SGBs)
Details
Launch
2015
Nature
Government securities denominated in grams of gold.
Issued by RBI.
Objective
Reduce dependence on gold imports and shift savings from physical gold to paper form.
Eligibility
Resident in India, including individuals, HUFs, trusts, universities, and charitable institutions.
Denomination and Tenor
Denominated in multiples of grams of gold, with a basic unit of 1 gram.
Tenor of 8 years with an exit option from the 5th year on interest payment dates.
Investment Limits
Minimum: 1 gram of gold.
Maximum: 4 kg for individuals and HUFs,
20 kg for trusts and similar entities per fiscal year.
Benefits
Quantity of gold protected, receiving market price at redemption.
Eliminates storage risks and costs.
Assured market value at maturity and periodic interest.
Free from making charges and purity issues.
Held in RBI books or demat form, eliminating scrip loss risk.
Add-ons
Can be used as collateral for loans.
Loan-to-value (LTV) ratio set equal to ordinary gold loans.
PYQ:
[2016] What is/are the purpose/purposes of Government’s ‘Sovereign Gold Bond Scheme’ and ‘Gold Monetization Scheme’?
To bring the idle gold lying with Indian households into the economy
To promote FDI in the gold and jewellery sector
To reduce India’s dependence on gold imports
Select the correct answer using the codes given below:
The Department of Animal Husbandry and Dairying is implementing the Rashtriya Gokul Mission.
The mission aims to develop and conserve indigenous bovine breeds, genetically upgrade the bovine population, and enhance milk production and productivity.
AboutRashtriya Gokul Mission:
Details
About
Initiated in December 2014.
Announced under the National Programme for Bovine Breeding and Dairy Development during the 12th Five Year Plan.
Continued under Rashtriya Pashudhan Vikas Yojana (2021-2026) with a budget of Rs. 2400 crore.
Nodal Ministry
Ministry of Fisheries, Animal Husbandry, and Dairying
Objectives
Enhance productivity of bovines and increase sustainable milk production using advanced technologies.
Propagate the use of high genetic merit bulls for breeding.
Expand artificial insemination coverage by strengthening the breeding network and delivering services at farmers’ doorsteps.
Promote scientific and holistic conservation of indigenous cattle and buffalo rearing.
Significance
Increased productivity, benefiting all cattle and buffaloes in India, with a focus on small and marginal farmers.
Empowers women, who perform over 70% of livestock farming tasks.
Components
Availability of High Genetic Merit Germplasm
Extension of Artificial Insemination Network
Development and Conservation of Indigenous Breeds
Skill Development
Farmers’ Awareness
Research, Development, and Innovation in Bovine Breeding
Implementing Agency
State Implementing Agency (SIA) viz. Livestock Development Boards
Significant Initiatives
Gopal Ratna Awards: For farmers maintaining the best herd of Indigenous Breed and practicing best management practices.
Kamdhenu Awards: For best-managed Indigenous herd by Institutions/Trusts/ NGOs/ Gaushalas or best-managed Breeders’ societies.
Gokul Grams: Integrated cattle development centers focusing on promoting indigenous cattle rearing and conservation in a scientific manner.
National Kamdhenu Breeding Centre (NKBC): Centre of Excellence for the holistic and scientific development and conservation of Indigenous Breeds.
E-Pashu Haat: Web portal providing information on pet cattle and facilitating trading of bovine animals.
Nakul Prajnan Bazaar: E-market portal connecting breeders and farmers for quality, disease-free bovine germplasm.
Pashu Sanjivni: Animal wellness program providing animal health cards and unique identification, uploading data on the National Database.
Advanced Reproductive Technology (ART): Includes Assisted Reproductive Technique- IVF/Multiple Ovulation Embryo Transfer (MOET) and sex-sorted semen technique.
National Bovine Genomic Center for Indigenous Breeds (NBGC-IB): To be established for selecting breeding bulls of high genetic merit at a young age using highly precise gene-based technology.
Key Initiatives for Artificial Insemination:
Multi-Purpose Artificial Insemination Technicians in Rural India (MAITRI): This initiative provides trained manpower for delivering quality artificial insemination services at farmers’ doorsteps.
Nationwide Artificial Insemination Programme: This programme extends artificial insemination coverage among bovines using semen from high genetic merit bulls of indigenous breeds.
Induction of High Genetic Merit Bulls: This program produces bulls with known genetic potential through progeny testing and pedigree selection, supplying these bulls to semen stations for quality semen dose production.
Strengthening of Semen Stations: Efforts are made to improve the quality of semen production by formulating minimum standard protocols and establishing a Central Monitoring Unit for evaluation and grading of semen stations.
Breed Purity Tests: To protect indigenous breeds from indiscriminate breeding, breed purity tests are conducted for all imported germplasm.
Guidelines for Import and Export of Bovine Germplasm: The Department has formulated guidelines to regulate the import of germplasm and prevent the ingress of exotic diseases, ensuring the safety and purity of bovine genetics within the country.
PYQ:
[2012] Consider the following crops of India:
Cowpea
Green gram
Pigeon pea
Which of the above is/are used as pulse, fodder and green manure?
(a) 1 and 2 only
(b) 2 only
(c) 1 and 3 only
(d) 1, 2 and 3
[2015] Livestock rearing has a big potential for providing non-farm employment and income in rural areas. Discuss suggesting suitable measures to promote this sector in India.
Finance Minister Nirmala Sitharaman’s decision to eliminate indexation for calculating long-term capital gains (LTCG) tax in the Union Budget has received a lukewarm response from stakeholders.
Changes in the LTCG Regime
The new LTCG regime removes the indexation benefit for property, gold, and other unlisted assets.
The LTCG tax rate is reduced from 20% to 12.5%.
For assets purchased before 2001, the fair market value as of April 1, 2001, is considered the cost of acquisition.
What is long-term capital gains (LTCG) tax?
LTCG refers to the profit realized from the sale of an asset that has been held for more than one year. This includes various types of assets such as stocks, bonds, real estate, and mutual funds.
If an asset is sold before this holding period, the gains are classified as short-term capital gains (STCG) and are taxed at different rates.
Why has the Union Finance Minister done away with indexation for computing long-term capital gains (LTCG) tax?
Simplification of Tax Computation: The Finance Minister proposed the change to “ease computation of capital gains for the taxpayer and tax administration.” The intention is to simplify the tax process.
Uniform Tax Rate: Long-term gains on all financial and non-financial assets would now be taxed at a flat rate of 12.5%, replacing the previous tiered structure.
High real estate return: The Income Tax department believes that the real estate returns (12-16% per annum) are higher than indexation for inflation (4-5%). Thus, it predicts “substantial tax savings” for a “vast majority” of taxpayers under the new system.
What is indexation?
Indexation is a mechanism used to adjust the original purchase price of an asset to account for inflation. It helps in calculating the real gains and prevents inflation from inflating the tax liability. The adjusted purchase price is called the indexed cost of acquisition.
How does Indexation help in Tax Savings?
Adjusts the purchase price for inflation: Indexation increases the original purchase price of an asset to account for inflation between the time of purchase and sale. This results in a lower taxable capital gain.
Reduces the taxable capital gains: By revising the purchase price upwards using the Cost Inflation Index, indexation reduces the difference between the sale price and purchase price. This lowers the taxable capital gains amount.
Leads to lower tax liability: With a reduced taxable capital gain, the tax payable on it also decreases. For example, on a ₹48 lakh gain from selling a house, indexation can bring down the taxable gain to ₹28.6 lakh, saving ₹4,264 in tax (assuming 20% LTCG rate).
What has been the feedback from corporates and industry regarding the move?
Concerns Over Increased Tax Liability: Many stakeholders expressed apprehension that the removal of indexation would lead to higher tax obligations for ordinary investors, particularly in the real estate sector.
There are fears that this might encourage the undervaluation of properties to reduce capital gains tax and potentially increase black money transactions in real estate.
Mixed Reactions from Realty Players: While some real estate developers and consultants indicated that the removal of indexation might not significantly impact demand and prices, especially for primary home buyers, they noted that high-end properties could see a drop in demand.
Some developers viewed the changes positively and said that the lowered tax rate (from 20% to 12.5%) could make real estate a more attractive long-term investment.
Government Justifications and Clarifications: The government has argued that the new tax regime simplifies the capital gains tax structure and is beneficial for most taxpayers.
Way forward:
Transitional Provisions: Govt. should implement transitional provisions for existing investments to ease the shift from the old system to the new one.
Strengthen the monitoring system: Need to strengthen monitoring mechanisms to prevent the undervaluation of properties and reduce black money transactions.
Mains PYQ:
Q Comment on the important changes introduced in respect of the Long-term Capital Gains Tax (LCGT) and Dividend Distribution Tax (DDT) in the Union Budget for 2018-2019. (UPSC IAS/2018)
SEBI has proposed a series of measures tocurb speculative trading in the index derivatives segment due to concerns over the exponential increase in trading volumes in futures and options, especially among individual investors.
What are the different types of derivatives?
Note: Derivatives are financial contracts deriving their value from an underlying asset such as stocks, commodities, or currencies.
Futures:
Futures are standardized contracts obligating the buyer to purchase an underlying asset (such as stocks, commodities, or currencies) at a predetermined price on a specified future date. They are traded on exchanges, with daily settlements based on market price changes.
Futures contracts have margin requirements and are marked to market daily, ensuring liquidity and reducing credit risk.
Options:
Options give the buyer the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset at a predetermined price within a specified time frame. Unlike futures, options are not obligatory; the buyer can choose whether to exercise the option.
Options can be traded on exchanges or over-the-counter (OTC) and require the payment of a premium by the buyer.
Forwards:
Forward contracts are similar to futures but are privately negotiated agreements between two parties to buy or sell an asset at a future date and price. They are customizable and traded over the counter, which allows for flexibility but introduces counterparty risk.
Settlement occurs at the maturity date, and forward contracts do not have standardization like futures.
Swaps:
Swaps involve the exchange of cash flows or financial instruments between two parties, often based on interest rates or currencies. Common types include interest rate swaps and currency swaps, which allow participants to manage exposure to interest rate fluctuations or gain access to different currencies.
Swaps are typically traded over the counter and can be tailored to meet the specific needs of the parties involved.
What measures have the SEBI proposed?
Increase in minimum contract size for index derivatives from Rs 5-10 lakh to Rs 15-20 lakh, which can be further increased to Rs 20-30 lakh after six months.
Upfront collection of option premiums by brokers from clients.
Intraday monitoring of position limits for index derivative contracts by Market Infrastructure Institutions (MIIs).
Providing only one weekly options contract on a single benchmark index of an exchange.
Removal of calendar spread benefits on the expiry day for positions involving any of the contracts expiring on the same day.
Rationalisation of options strikes, with a uniform interval up to a fixed coverage of 4% near the prevailing index price and an increased interval as the strikes move away from the prevailing price.
Increasing margins on the expiry day and the previous day to address the issue of high implicit leverage in options contracts near expiry.
Why have these measures been proposed?
The measures aim to enhance investor protection and promote market stability in the derivative markets, amidst concerns about an exponential rise in the volume of trade in the futures and options (F&O) segment, particularly by individual investors.
In the Union Budget 2024-25, the Securities Transaction Tax (STT) on F&O of securities was doubled to 0.02% and 0.1%, respectively, effective October 1, 2024.
Data shows that in FY 2023-24, 92.50 lakh unique individuals and proprietorship firms traded in the NSE index derivatives segment and cumulatively incurred a trading loss of Rs 51,689 crore, with only 14.22 lakh investors (about 15%) making a net profit.
Way forward:
Enhancing Investor Education and Awareness: To mitigate the risks associated with speculative trading in index derivatives, it is essential to implement comprehensive investor education programs.
Strengthening Regulatory Oversight and Compliance: SEBI should enhance its regulatory framework by implementing robust monitoring systems that ensure compliance with the proposed measures.
Q1 China is using its economic relations and positive trade surplus as tools to develop potential military power status in Asia’, In the light of this statement, discuss its impact on India as her neighbour. (UPSC IAS/2021)
Q2 With respect to the South China sea, maritime territorial disputes and rising tension affaire the need for safeguarding maritime security to ensure freedom of navigation and ever flight throughout the region. In this context, discuss the bilateral issues between India and China. (UPSC IAS/2014)
Prelims:
Q ‘Belt and Road Initiative’ is sometimes mentioned in the news in the context of the affairs of (2016) (a) African Union (b) Brazil (c) European (d) Union China
Note4Students:
Prelims: Bordering countries with China;
Mains: Dependency on Chinese technician;
Mentor comments: Chinese technicians are vital for the Indian economy as they help bridge significant skill gaps in various industries, including manufacturing and technology. Their expertise is crucial for effectively operating Chinese machinery, which many Indian businesses have acquired but cannot utilize efficiently without skilled personnel. This dependency is highlighted by the urgent need for faster visa approvals for Chinese experts, as delays have led to substantial production losses, estimated at $15 billion over recent years. Integrating their knowledge is essential for enhancing productivity and achieving India’s manufacturing ambitions.
Let’s learn!
__
Why in the News?
Indian authorities plan to increase visas for Chinese technicians, acknowledging a significant skill gap between them and Indian workers, which is crucial for enhancing productivity in various industries.
Dependency on Chinese Technicians
Skill Gaps: Indian businesses are facing a substantial skill deficit compared to their Chinese counterparts, which hampers productivity and the effective use of advanced machinery.
Declining Visa Issuance: The number of visas issued to Chinese nationals has drastically decreased from approximately 200,000 in 2019 to just 2,000 in 2024, largely due to geopolitical tensions following border clashes in 2020.
This reduction has created a bottleneck in the manufacturing sector, leading to estimated production losses of around $15 billion over the past four years.
Government Response: In light of these challenges, Indian authorities are working to expedite the visa process for Chinese technicians, aiming to reduce processing times from several months to about 30 days.
Importance of Foreign Knowledge Integration:
Role of Foreign Knowledge in Development: Foreign knowledge is crucial for economic development but is most effective when combined with a well-educated domestic workforce. This integration enhances the ability to utilize foreign expertise effectively.
Korea’s Successful Model: In the 1980s, South Korea leveraged foreign technology by purchasing machines to dismantle and reverse engineer them.
This was possible due to a strong educational foundation that had been established over three decades, allowing minimal reliance on foreign assistance.
China’s Strategic Approach: China began its rapid economic growth in the early 1980s, despite having a weaker educational base than Korea. However, the quality of primary education during the Communist era prepared China for development.
Deng Xiaoping’s initiatives, including sending policymakers on international study tours and attracting foreign investors, facilitated the absorption of global knowledge.
India’s Educational Challenges: India has focused on building school infrastructure and increasing enrollment, but the quality of education remains low.
Only about 15% of Indian students possess the basic skills necessary for participation in the global economy, compared to 85% of Chinese students.
Global Competitiveness: China’s performance in international assessments, such as the Programme for International Student Assessment (PISA), has consistently improved, with Chinese students outperforming their peers globally.
In contrast, India’s participation in PISA ended after a poor showing in 2009, highlighting a significant gap in educational outcomes.
Red Queen Race:
Fundamental lesson from the Red Queen: The phrase “You must run twice as fast as you can to stay in the same place” illustrates the necessity for continuous improvement and adaptation in the face of competition, especially in the context of global technological advancements.
China’s educational advancements: Chinese universities are now among the world’s best, particularly in fields like computer science and mathematics, reflecting a strong emphasis on integrating foreign knowledge with domestic education.
Scientific progress: Chinese scientists are making significant strides in applied sciences relevant to industrial progress, positioning China as a leader in electric vehicles, solar technology, and artificial intelligence.
Western response to competition: Instead of addressing deficiencies in their education systems, Western leaders are resorting to protectionist measures against Chinese imports, which may not effectively resolve underlying issues in their own educational frameworks.
India’s educational challenges: Indian elites appear to overlook the lessons from China, with economists suggesting a shift towards technology-enhanced service exports while ignoring the need for a robust base of high-quality education to support such initiatives.
Way forward:
Streamline Visa Approval Processes: India should expedite the visa application process for Chinese technicians by implementing a fast-track system that reduces approval times to less than a month.
Enhance Domestic Education and Training: To complement foreign expertise, India must invest in improving its educational system, focusing on vocational training and technical skills.
In the 2024-25 Budget proposals, Union Finance Minister Nirmala Sitharaman declared that over the next two years, one crore farmers nationwide will be introduced to natural farming, with support provided through certification and branding.
National Mission on Natural Farming (NMNF):
The National Mission on Natural Farming (NMNF) aims to encourage farmers to adopt chemical-free farming practices and willingly shift to natural farming based on the merits of the system.
The government believes the success of NMNF hinges on changing farmers’ behaviour to transition from chemical-based inputs to cow-based, locally-produced inputs, supported by a financial outlay of ₹4,645.69 crore over six years (2019-20 to 2024-25) under the ‘Bharatiya Prakritik Krishi Paddhati’ scheme.
What is natural farming?
Natural farming avoids the use of chemical fertilizers and pesticides, instead promoting traditional indigenous practices.
It focuses on recycling on-farm biomass, employing biomass mulching, and utilizing formulations made from cow dung and urine.
Pests are managed through diverse farming practices and on-farm botanical mixtures, strictly excluding all synthetic chemical inputs.
What are the concerns related to Yield?
Yield Reduction: Agricultural experts are concerned that a large-scale transition to natural farming could result in reduced crop yields. Studies have shown significant declines in yield for staples like wheat (59%) and basmati rice (32%) compared to integrated crop management systems.
Food Security: Lower yields from natural farming could threaten food security in a populous country like India, potentially only being able to feed around one-third of the population with staples like wheat and rice.
Findings on the Ground:
Mixed outcomes: Field experiments have shown mixed results. Some studies indicate improved yields and incomes with lower costs due to biological inputs, while others show a decline in productivity.
Good Results in Andra Pradesh: In Andhra Pradesh, adopting natural farming methods has shown promising results, leading to better crop yields and enhanced farmers’ incomes.
Concerns about sustainability and productivity: Agro-scientists from the Indian Council of Agricultural Research (ICAR) and the Indian Institute of Farming Systems Research (IIFSR) have raised concerns about the sustainability and productivity of natural farming methods.
Differences in Studies:
CESS Study: The Centre for Economic and Social Studies (CESS) and Institute for Development Studies Andhra Pradesh found that natural farming practices led to improved yields and incomes for farmers, thereby enhancing food and nutritional security.
ICAR-IIFSR Study: The study by ICAR-IIFSR reported a significant decline in yields of key crops like wheat and basmati rice when compared to conventional farming practices, suggesting a negative impact on food supply.
Case study of Sri Lanka:
Policy Shift: Sri Lanka’s decision to completely switch to organic farming and ban chemical fertilizers led to economic and political turmoil.
Yield Decline: Farmers struggled to obtain natural fertilizers, resulting in reduced yields of key crops, including rice.
Food Security Risk: The shift put the country’s food security at risk, causing sharp price escalations and widespread protests and unrest.
Way forward:
Localized Implementation and Scientific Validation: Need to conduct rigorous scientific studies and extensive field trials to validate the productivity and viability of natural farming methods before scaling them up nationwide.
Hybrid Approach and Support for Farmers: Govt. should adopt a hybrid approach that combines the best practices of both natural and conventional farming to ensure food security.
The withdrawal of theindexation benefit from the long-term capital gains (LTCG) tax regime has emerged as a contentious decision in the Union Budget for 2024-25.
What is Indexation?
Indexation is a method used to adjust the purchase price of an asset to account for inflation over the period it was held.
This reduces the taxable capital gain, as it reflects the increase in the asset’s value due to inflation.
Purpose: To ensure that the taxpayers are taxed only on the real gains and not on the inflationary increase in the value of the asset.
Changes in the LTCG Regime
The new LTCG regime removes the indexation benefit for property, gold, and other unlisted assets.
The LTCG tax rate is reduced from 20% to 12.5%.
For assets purchased before 2001, the fair market value as of April 1, 2001, is considered the cost of acquisition.
Implications of the Changes
The government claims the changes simplify the capital gains tax structure without causing a loss to most taxpayers.
The uniform tax rate for various asset classes is intended to benefit both taxpayers and tax authorities.
Concerns for Taxpayers
There was significant concern, particularly in the residential real estate sector, about increased LTCG tax liabilities.
The government clarified that the new regime would be beneficial in most cases, as real estate returns typically outpace inflation.
The Income Tax Department explained that:
For properties held for 5 years, the new regime is beneficial if the value has appreciated 1.7 times or more, and
For 10 years, if the value has increased to 2.4 times or more.
Back2Basics:Capital Gains Tax Overview
Details
Definition
Tax on profit from the sale of a capital asset.
Launch
Introduced in 1956, as part of the Income Tax Act, 1961.
Types
Short-Term Capital Gains (STCG): Held for ≤36 months (≤12 months for specified assets).
Long-Term Capital Gains (LTCG): Held for >36 months (>12 months for specified assets).
Tax Rates (STCG)
With STT: 15%
Without STT: Applicable income tax slab rates.
Tax Rates (LTCG)
Listed Equity Shares & Equity-Oriented Funds: 10% on gains >₹1 lakh without indexation.
Other Assets: 20% with indexation (proposed 12.5% without indexation from FY 24-25).
Indexation
Adjusts purchase price for inflation using Cost Inflation Index (CII).
Purpose of Indexation
To tax only the real gains, accounting for inflation.
Formula (Indexation)
Indexed Cost of Acquisition: (Cost of Acquisition × CII of sale year) / CII of purchase year
Indexed Cost of Improvement: (Cost of Improvement × CII of sale year) / CII of improvement year
PYQ:
[2012] Under which of the following circumstances may ‘capital gains’ arise?
1. When there is an increase in the sales of a product
2. When there is a natural increase in the value of the property owned
3. When you purchase a painting and there is a growth in its value due to increase in its popularity
Select the correct answer using the codes given below:
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