Budget booster likely for capital gains on property and equity

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The Government is likely to introduce heavy-duty measures for rationalization of key equity taxes, including scrapping capital gains on the sale of the property, shifting the tax applicability of dividend distribution tax (DDT) to the receiver and increasing the timeline of long term capital gains (LTCG) tax from the current 12 months to 24 months.

 Its break Budget to revive the economy through materializes; it will be doing away with capital gains on the sale of the property. The move has the potential to revive the real estate sector which is in the gloom and facing huge stress. The government is examining a proposal to do away with capital gains on the selling of property. Currently, one has to pay 30% capital gains on the sale of a property, if the property holder doesn’t re-invest it back in property within three years.

If the property is sold within 24 months, one has to pay a short term capital gains tax (STCG) on the gains according to the individual’s income-tax slab. After 24 months, one has to pay an LTCG tax, which is charged at 20% with indexation benefits. As per Income tax act, section 54 gives an exemption if there is the sale of a property and then another one is bought. This exemption under section 54 is available only when the capital gains from a property sale are reinvested into buying or constructing a maximum of two houses.

However, To claim the exemption for reinvesting in two properties, the capital gains on the sale of house property must not exceed ₹ 2 crores. This tax benefit can be claimed only once in the lifetime. The exemption will be reversed if this new property is sold within three years of purchase and capital gains from the sale of the new property will be taxed as short-term capital gains. 

Besides, the government is likely to change the applicability of dividend distribution tax (DDT) by shifting the tax liability from dividend issuer or the company to the receiver. Currently, the dividend distribution tax is levied at an effective rate of 20.56 per cent on the company declaring dividends. This is over and above the corporate tax. Apart from this, resident non-corporate taxpayers need to pay 10% tax on dividends above ₹ 10 lakh a year. 

The DDT was introduced for more effective collection of dividend tax from the companies rather than shareholders. In a move that will fire up the stock markets, the government is likely to extend the timeline of long term capital gains (LTCG) on shares from the current 12 months to 24 months. Now, LTCG of 20% is paid by domestic investors if they hold equity for 12 months, and 10% is charged to non-residents if they hold equity for 12 months.

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