India (Effective 23 July 2024)
The FM in the Union Budget 2024 has announced that short term capital gains tax rate on sale of equity oriented mutual funds, equity shares have been increased to 20% from the existing rate of 15%. Other Short term capital gains shall continue to be taxed on applicable rates. Long-term capital gains (LTCGs) will attract a tax rate of 12.5% (without indexation benefit) as against the existing rate of 10%/20%. Additionally, the limit of exemption for LTCG will be enhanced to INR 1.25 lakh per year from the existing threshold of INR 1 lakh per year with respect to equity shares and units of equity-oriented funds, where Securities Transaction Tax (STT) has been paid.The FM has also brought in uniformity in the holding period of capital assets. It is proposed that there will be only two holding periods, 12 months and 24 months, for determining whether the capital gains are short-term or long term. For all listed securities, the holding period is proposed to be 12 months and for all other assets, it shall be 24 months.
Below are few countries capital gains tax landscape:
China
China imposes a flat 20% tax rate on individual capital gains arising from sale of movable/immovable property. Capital gains arising from transfer of shares listed on China stock exchanges in the secondary market are temporarily exempt from tax.
Australia
Gains realized on Capital assets including real property and personal property, regardless of whether they are used in a trade or business, and shares acquired for personal investment is taxable at the marginal income tax rate. There is a capital gains tax discount of 50% for Australian resident individuals who own an asset for 12 months or more. This means you pay tax on only half the net capital gain on that asset.
France
In France, capital gains from the sale of shares and real estate are taxable. Capital gains on the sale of shares, whether listed or unlisted, and related financial instruments like bonds or funds, are taxed at a flat rate of 30%, which includes 12.8% income tax and 17.2% social charges. However, taxpayers have the option to be taxed at progressive rates with a holding period discount, if it results in a lower tax, depending on when the shares were purchased. For real estate, the capital gains are taxed at 19%, plus 17.2% social charges, totalling a combined tax rate of 36.2%.
Germany
Germany’s capital gains tax rate for individuals is 25%. Church tax may also apply, further increasing the tax burden for some taxpayers. This reflects Germany’s commitment to social welfare, funded in part by capital gains taxes.
Japan
Japan’s capital gains tax system varies significantly depending on the asset type. Stock sales are taxed at a total rate of 20% (15% income tax plus 5% inhabitant tax), while land and building can be taxed at 20% (15% income tax plus 5% inhabitant tax), for long term capital gains and 39% (30% income tax plus 9% inhabitant tax) for short term capital gains, one of the highest in the comparison. The higher rate for land and building is indicative of Japan’s efforts to regulate its real estate market and generate revenue from property transactions.
Singapore
Singapore stands out with no capital gains tax, making it an attractive destination for investors (if not treated as carrying on of a trade). The absence of capital gains tax is part of Singapore’s competitive tax regime designed to stimulate economic growth and attract foreign investment.
Sweden
Sweden imposes a 30%/25% tax rate on capital gains from listed shares and unlisted shares respectively for individuals. This rate is consistent with Sweden’s relatively high tax rates across various forms of income, reflecting the country’s extensive social services and public welfare programs.
United States
The United States taxes short term capital gains at ordinary rates, and sets a maximum tax rate of 20% on long-term capital gains, which is relatively lower than many other developed countries. This rate is intended to encourage investment and growth in the U.S. economy.
In comparison to other countries, India’s revised capital gains tax rate of 12.5% on LTCG generally positions it as relatively moderate, particularly when compared with higher rates seen in other countries like Germany, Sweden and France.
(Amarpal S. Chadha is Tax Partner, EY India; Shanmuga Prasad, Director, EY India also contributed to the article)