How India has been taxing capital gains on equity, gold, real estate

The history of capital gains taxation starting 1991; for equity, 2004 budget granted exemption from LTCG

- Satya Sontanam & Neil Borate

With Union budget 2023 around the corner, there are expectations that the government may tweak the current capital gains tax regime. Capital gains are the profits earned by an investor on selling assets.

From having a debate on whether capital gains tax would discourage investments to bringing in various provisions in the tax book on how to levy tax in diverse scenarios, India has come a long way. This story takes a look at the history of capital gains taxation (CGT) in India for three asset classes equity, immovable property and gold-all of which have been creating wealth for investors in the long run.

There have been several changes to the CGT of listed equity in India in the last three decades. The only thing constant though is the holding period of one year to be eligible for longterm capital gains (LTCG). Tax rules on immovable property and gold have largely been untouched.

With inputs from Dipen Mittal, a chartered accountant from Taxmann, a tax publishing company, we lay down the key events in the history of CGT starting 1991, the beginning of a decade of economic reforms in India.

The beginning

The tax on capital gains was first introduced to curb speculative activity of buying and selling assets in an inflationary environment. The earliest incidence of tax was for capital gains earned during 1 April 1946 and 31 March 1948. The government followed a progressive tax structure, exempting gains of up to 15,000 (see graphic). The tax was abolished in 1949 as it was believed to have hampered stocks and shares transaction.