India cannot become Viksit Bharat without properly taxing capital gains: Finance Secretary Somanathan

India cannot achieve the status of Viksit Bharat without appropriately taxing the rapidly growing segment of income, according to Finance Secretary TV Somanathan, who defended the recent increase in long-term capital gains tax (LTCG).

"Simplification doesn't necessarily imply rate reduction. This revision streamlines a complex capital tax regime, making it simpler and more uniform. Globally, our capital tax rate on long-term listed equities is low, not high," Somanathan explained in an interview with Moneycontrol on July 23.

Capital gain refers to any profit or gain from the sale of a 'capital asset'.

The Union Budget for 2024-25 raised LTCG to 12.5 percent from 10 percent, while the short-term capital gains tax is now 20 percent on specified financial assets.

The Security Transaction Tax (STT) on the sale of an option in securities increased from 0.0625 percent to 0.1 percent of the option premium. For the sale of futures in securities, it rose from 0.0125 percent to 0.02 percent of the futures trade price.

Addressing concerns about the impact of higher LTCG on the middle class, Somanathan stated that the wealthy primarily benefit from capital gains. "Capital gains are not predominantly a middle-class issue; they are primarily earned by the rich, who often frame it as a middle-class concern," he added.

Indicating the government's future approach to the capital gains tax regime, Somanathan asserted, "Earners of capital gains are not poor, and we will continue to tax them at a reasonable rate."