Budget 2023 may bring tax parity in capital gains on listed and unlisted equities

Under the existing superior gains taxation regime, beneficial taxation rates person been provided for income arising from the merchantability of listed equity shares. Even the play of holding of shares by the equity investors, which determines the applicable taxation rates, is antithetic successful the lawsuit of listed shares and unlisted shares.

Gains connected listed shares are considered semipermanent if held for much than 12 months and taxed astatine a concessional complaint of 11.96 per cent. Whereas gains connected unlisted shares are considered semipermanent if held for much than 24 months and are taxable astatine the complaint of 23.92 per cent. Short-term gains connected listed shares are taxable astatine 17.94 per cent and connected unlisted shares are taxable astatine applicable slab rates.

Such a disparity has an interaction connected the maturation of backstage equity markets successful India attracting the larger capitalist assemblage to put successful the listed marketplace which provides higher liquidity and little taxation cost.

It tin besides beryllium noted that the applicable taxation complaint for non-resident investors investing successful semipermanent unlisted shares successful India is restricted to 10 per cent thereby being astatine par with the taxation complaint provided for the listed shares. The rates for nonmigratory investors should besides beryllium reduced to bring successful a level playing field.

In Budget 2022, the Finance Ministry addressed the contented of differential surcharge rates applicable connected semipermanent superior gains successful the lawsuit of listed and unlisted securities by capping the surcharge complaint connected semipermanent superior gains astatine 15 per cent.

Earlier lone the surcharge complaint connected semipermanent superior gains connected listed equity shares was capped astatine 15 per cent. However, semipermanent gains arising connected unlisted shares attracted surcharge of arsenic precocious arsenic 37 per cent successful the lawsuit of idiosyncratic taxpayers having an yearly full income of much than Rs 5 crore.

The said amendment brought alleviation to High-Net worthy Individuals, peculiarly those investing successful start-ups and besides leads to a large impetus to investments made by the investors successful the money industry. Budget 2022 nevertheless did not code the differential taxation rates and holding periods betwixt listed and unlisted shares, thereby, inactive leaving country for disparity for the backstage equity investors.

Bringing successful parity successful taxation of unlisted shares would effect successful nonstop maturation for the start-up manufacture which has ever been the absorption country for the Government.

The PE/VC assemblage would besides spot large maturation arsenic the money manufacture predominantly invests successful the unlisted markets. This would mean much backstage superior excavation for money managers and hence much funds for the early-stage entities.

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It cannot beryllium denied that the existent superior gains taxation model successful India is precise analyzable successful presumption of the quality successful taxation based connected antithetic classes of assets, play of holding, availability of indexation benefits, computation mechanism, etc. and needs a relook.

With Budget 2023 astir the corner, it is expected that the taxation authorities volition see restructuring the superior gains taxation authorities making it simpler and bringing uniformity. A streamlined mechanics is expected to beryllium introduced wherein immoderate gains connected securities shall beryllium considered semipermanent if held for much than 12 months and taxable astatine the complaint of 10 per cent without immoderate analyzable computation rules. Short-term gains connected securities held for little than 12 months should beryllium taxed astatine the concessional complaint of 15 per cent.

Some different expectations could beryllium a simplification successful the taxation rates for dividend income. With the abolition of the dividend organisation tax, the dividend income is presently taxable successful the hands of shareholders astatine slab rates with the surcharge complaint capped astatine 15 per cent. This results successful an effectual taxation complaint of arsenic precocious arsenic 35.88 per cent. In the lawsuit of non-residents, the dividend income is taxable astatine a little complaint of 20 per cent oregon lower, considering taxation pact benefits, resulting successful a sizeable quality successful the applicable taxation rates for residents and non-resident investors.

Budget 2023 is expected to beryllium a taxpayer-friendly fund considering that the planetary economies are sliding towards recession. Rationalisation successful superior gains taxation rates and simplification successful the computation mechanics could boost investments and maturation successful the country.

(Bhatia is Partner - Tax & Regulatory Services astatine BDO India. The views expressed are personal)

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