Government open to ‘some tinkering’ in capital gains tax regime: Tarun Bajaj

The official projected a ten-fold rise in capital gains tax in the current fiscal over the previous year and said the government is open to the idea of a higher goods and services tax (GST) for restaurants that would allow them to claim input tax credit.

“We need to rework the capital gains structure for rates, (and) holding periods. We would be open to some tinkering in it the next time we get an opportunity,” Bajaj said at a post-budget event organised by the industry body CII.

Under the I-T Act, gains from sale of capital assets, both movable and immovable, are subject to capital gains tax. The Act provides for separate rates of taxes for long-term and short-term capital gains, based on the period of holding an asset.

“I think it is too complicated…for real estate, we have made it 24 months, for shares 12 months, for debt it is 36 months,” Bajaj said, agreeing with the need for a simpler regime. “We need to work on that.”

Bajaj asked CII to study the prevailing rates of capital gains tax across the world, saying the department had already surveyed the rates in developed nations.

He said the government is likely to collect good revenue through capital gains tax in the current fiscal on the back of a buoyant and active stock market. “We are making an estimate that it should be between 60,000-80,000 crore. Last year it was about 6,000-8000 crore,” he said.

“Now with the tapering (reduction of asset purchases by the US Federal Reserve) happening and rates likely to go up in the US and (with) money moving out, one does not know how the market is going to play,” Bajaj said.

Movable personal assets such as cars, apparel, and furniture are excluded from capital gains tax.

INPUT TAX CREDIT FOR RESTAURANTS
Bajaj said the government is open to looking into the restaurant industry’s demands of going back to a higher GST rate along with the benefit of the tax credit on their inputs.

Currently, a 5% tax is levied on restaurant services, irrespective of whether it is air-conditioned or non-AC, without the benefit of the input tax credit (ITC). A higher 12% GST rate would allow them to claim input tax credit.

“I also got this suggestion from the restaurant industry that they would like to go back to a higher rate of taxation with ITC being allowed to them, rather than (be) only on 5% tax rate. Which is very fine. We would be open to look into this,” Bajaj said.

A final decision on the reversal in the tax rate for the restaurant industry will be taken by the GST Council, chaired by the Union finance minister with state finance ministers as members.

Bajaj said this year, the attempt would be to bring some changes in the GST framework so that there is stability and the trade knows the tax rates and can plan accordingly.

The GST Council has already set up a panel of state ministers under Karnataka chief minister Basavaraj Bommai to suggest changes in GST rate structure, trimming of exemption list, and correction in inverted duty structure to expand a tax base. The panel is expected to submit its report by the end of this month.

With regards to trade and industry demand of rationalising rates, Bajaj said, “I want to sensitise the industry that the revenue neutral rate was 15.3%, but right now the rate is 11.6%. So, there is a huge gap.”