Why in the news?

• Government  is expected to tweak rules relating to taxation of capital gains from shares and increase the holding period for long term capital gains from shares to over two years from one year at present. 

More on news :

• Seeking to bolster its revenues from financial markets, the move, expected in the Union Budget 2018-19 to be tabled in Parliament on February 1, would bring the holding period for shares in line with the similar holding period that already exists for unlisted shares and transactions in real estate.
• Several economists were of the view that the government should increase tax incidence on gains in the equity market — which currently enjoy the lowest tax rate.
• Short-term capital gains (STCG) from sale of shares within a year are currently taxed at 15 per cent while the long term capital gains (LTCG) from sale of shares after one year are tax free.
• While some sections of market players are calling for abolishing Securities Transaction Tax (STT) and bringing in long term capital gains tax, the others say that this will only benefit the stock exchanges and brokers who benefit when the trading volumes rise.
• Unlike in previous years when markets were overtly dependent upon foreign fund flows, the Indian stock market is now significantly supported by domestic liquidity through mutual funds and direct investment.
• So an increase in holding period for STCG and a nominal tax on LTCG is unlikely to cause disruptions in the market balanced by domestic investments, the sources said.

Capital asset 

• Any property, movable or immovable, that is held by a person is termed as asset. This can include land, building, house, securities (stocks, mutual funds, bonds, debentures), jewellery, vehicles, patents, trademarks and machinery. 
• Short-term capital asset – An asset which is held for not more than 36 months or less is a short-term capital asset. Some assets are considered short term if held for less than 12 months.
• Long-term capital asset – An asset that is held for more than 36 months is a long-term capital asset. However, from 2017-18, the holding period has been reduced to 24 months in the case of immovable property.

Capital Gains Tax :

• Any profit or gain that arises from the sale of a ‘capital asset’ is a capital gain.
• This gain or profit is charged to tax in the year in which the transfer of the capital asset takes place.

Source :

The Hindu, Economic Times