One of the Budget 2022 announcements caused some confusion for a few. It has been announced that ONLY the LTCG Tax Surcharge is capped at 15% now for assets other than equity.
To be clear, it does not in any way mean that the LTCG Tax on Equity has increased. That stays as earlier at 10% – read more about Equity LTCG taxation if you want to refresh your understanding on this.
So what does this capping of LTCG surcharge at 15% means exactly?
Here is a simple explainer:
The surcharge on the long-term capital gains (LTCG) tax from equity funds and listed shares are already capped at 15%. More specifically, it is 10% for income between Rs 50 lakh to Rs 1 Crore, and 15% where income exceeds Rs 1 crore.
The new announcement only impacts surcharges on other assets (not listed equity or equity MFs).
Till now, this surcharge was based on the income slab of the taxpayer as listed below:
- 10% for Rs 50 lakh to Rs 1 Cr income,
- 15% for Rs 1-2 Cr income,
- 25% for Rs 2-5 Cr income,
- 37% for income above Rs 5 crore
This naturally pushed up the effective tax on the long-term capital gains upwards. But following the Budget 2022 announcement, the surcharges on all types of LTCG tax will be rationalized as follows (effective from 1st April 2022):
- 10% for income between Rs 50 lakh and Rs 1 Crore
- 15% for income above Rs 1 crore (the capping at 15% stands irrespective of amount of long term capital gains)
So how does it help you?
If you have a small portfolio, there is no impact on you.
If you have a large portfolio or you are a HNI Investor or had a total income above Rs 2 crore threshold, then obviously this is beneficial for you. From highs of 37%, the surcharge is now capped at 15%. So good for you.
Since this move also brings down the surcharges for LTCG from investment in unlisted startups, this is expected to, in a way, promote long term equity investments in startup space. But anyways, the startup investing, by definition is for long term, unless some startups accelerate themselves on the IPO path.
So that was about the new capping of LTCG surcharge at 15% from all assets and how it impacts your investments. A good move in Budget 2022 that I am sure will delight HNIs and startup founders at least.