Capital Gains Tax Comparison and Debate
There has been a lot of discussion recently about capital gains tax, with some industry leaders advocating for a reduction or even complete abolition, especially for FPIs. A table shared by ET Now compares India’s capital gains tax rates with those of other major economies.
India’s Capital Gains Tax vs. Global Standards
India currently imposes a 12.5% long-term capital gains tax (beyond ₹1.25 lakh) and 20% short-term capital gains tax. Comparing this with global tax rates:
Japan & China: 20% capital gains tax (likely for domestic investors)
US: No tax up to $44,000, 15% up to $490,000, 20% beyond that
UK: 10%–20% based on total income
Canada: 50% of capital gains taxed at the slab rate (~20% if slab rate is 40%)
Australia & France: 30% capital gains tax
Brazil: 22.5%, Austria: 27.5%
India’s tax rates are very much in line with other major economies and cannot be considered excessive. While some argue that India does not provide the same level of social security or welfare benefits as developed nations, in terms of capital gains taxation, it is quite comparable.
The Current Clamor for Tax Reduction
Interestingly, the demand for lowering capital gains tax has surfaced only after the market downturn. When markets were rallying, there was little concern over taxation. Now, as portfolios are struggling, calls to reduce capital gains tax have intensified. The argument that lower capital gains tax will attract more capital seems more like frustration over losses rather than a genuine concern about economic competitiveness.
Possible Rationalization and the Need to Scrap STT
While the move from 10% to 12.5% for LTCG and 15% to 20% for STCG could have been avoided, India’s current rates are still reasonable. If the absolute tax collections from capital gains rise significantly over time, there might be room for rationalization. However, in the near term, the most logical step for the government would be to remove the Securities Transaction Tax (STT).
STT, which currently generates ₹30,000 to ₹60,000 crores annually, acts as a direct burden on transactions and discourages active market participation. Removing STT would be a more effective way to support market liquidity and investor sentiment rather than tinkering with capital gains tax rates.
Would love to hear your thoughts on this. Let me know in the comments. Thanks!
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