Capital Gains Tax Rates — India vs Other OECD Countries

This document covers

1. Background
2. Quick Comparison
3. Summary
4. Country specific CG Tax Rates
   1. India
   2. United States of America
   3. United Kingdom
   4. Australia
   5. Germany
   6. Canada
   7. Singapore
   8. France
   9. Italy
   10. Japan

1. Background

Given Hon'ble FM Nirmala Sitharaman's announcement on capital gains tax during the union budget presented in July 2024, there was some concern over eliminating the concept of indexation and the alignment of most LTCG tax towards 12.5%.

Let's do a quick compare with few of the OECD countries and conclude. For more details refer country specific section in this document.

2. Quick Comparison ^*

^* While it is difficult to compare exactly, below to be used for a quick comparison to understand where India stands in terms of LTCG, STCG rates.

3. Summary

While rate comparison is one thing, the average Indian investor in Indian markets is for long-term, with the exception of new DEMATs established since 2020.

Given the magnitude of the serious investor's portfolios and the country's ever-increasing inflation, some are concerned about the new rates.

Otherwise, India's new CG tax rates are comparable, if not superior, to those of the OECD, and G7 in particular.

But the confrontation in India among taxpayers is all on "Indexation Benefit", which is not being followed by most of the OECD nations (including G7) when arriving at the gain from capital transactions.

4. Country specific CG Tax Rates

4.i. India

1. Meaning of Capital Asset: As per Income tax act 1961, Capital asset means any kind of property held by any person including property, stocks, gold, urban agriculture land, mutual funds, debentures, bonds, archaeological collection etc.
2. Types of Capital gains: Capital gains are classified into 2 types i.e., Short term capital gain and long-term capital gain
3. Holding period: The holding period in India varies for different types of assets. For property, holding for 24 months or more is long-term whereas for listed shares on which STT is paid, it is 12 months or more.
4. Rate of Taxes: As per Budget 2024, the long-term capital gains on sale of any asset will be taxable @ 12.5% whereas short term capital gains on sale of shares and mutual funds on which STT is paid is taxable @ 20% and all other short term capital gains are taxable @ slab rates of taxpayers.
5. Indexation: Indian government is allowing Indexation on partial basis. Indexation is applicable only for resident individuals and HUF for the properties acquired before 23^rd July 2024 and the gains is taxable @ 20%. However, if the taxpayer is getting loss with indexation, he cannot claim that loss. IT will be given as capital gain tax relief. Indexation is applicable only to Real estate.
6. Exemptions: The taxpayers can claim only 1.25 lakhs as exemption on the long- term capital gains on shares/mutual funds sold on which STT is paid. There are no other exemptions available.
7. Reinvestment Options: The taxpayers can claim reinvestment options to lower the long-term capital gains tax u/s 54, 54F, 54EC etc. However, reinvestments are available only for long-term capital gains.

Refer @ Capital Gains Income Tax Guide for more information

4.ii. United States of America

1. Meaning of Capital Asset: As per USA tax laws, any asset owned and used for personal or investment purpose by any person is a capital asset. Examples are house, household furnishings, stocks or bonds etc
2. Types of Capital gains: Capital gains are classified into 2 types i.e., Short term capital gain and long-term capital gain
3. Holding period: The holding period in USA is 12 months to be qualified as long-term. If a person holds any asset for more than 12 months, it is a long-term. If a person holds any asset for less than 12 months, it is a short term.
4. Rate of Taxes
   
   1. Short term capital gains on property or shares are taxed at graduated tax rates, just like regular income. Short-term capital gains tax rates can range from 10% to 37%, depending on filing status (single or joint filing) and income levels.
   2. Long-term capital gains on property or shares or any other asset is taxable @ 0%, 15% and 20% depending on filing status (single or joint filing) and income levels. Starting from 2024, most of the long-term capital gains will be taxed @ 15% in USA.
   
   

   LTCG taxable @ 0% (if income is <=)	LTCG taxable @ 15% (if income is in below limits)	LTCG taxable @ 20%
   Single filing - $47,025	Single filing - $47,026 to $518,900	Single filing - $518,901 or more
   Married filing jointly - $94,050	Married filing jointly - $94,051 to $583,750	Married filing jointly - $583,751 or more
   Married filing Separately - $47,025	Married filing Separately - $47,026 to $291,850	Married filing Separately - $291,851 or more
   Head of Household - $63,000	Head of Household - $63,001 to $551,350	Head of Household - $551,351 or more^

5. Indexation: Indexation benefit is not available in USA for any kind of asset
6. Exemptions: Individuals can claim exemption of 2,50,000 USD (Single filing) or 5,00,000 USD (Joint filing-married) on property sale. However the home should have been occupied as residence for at least 24 months of the last 5 years
7. Reinvestments: If reinvestment is done in like kind property , the taxes on sale of property is deferred but it is not tax free.

4.iii. United Kingdom

1. Meaning of Capital Asset: As per UK tax laws, capital assets mean any tangible or intangible property including land, building, shares, bonds etc
2. Types of Capital gains: There is no distinction between short term capital gains and long-term capital gains. Capital gains are taxed like normal income
3. Holding period: There is no distinction between Short term and long-term. Hence there is no concept of holding period in UK.
4. Rate of Taxes: The capital gain tax rate depends on total amount of your taxable income.
   
   1. W.e.f 30^th Oct 2024, the capital gains tax rate is 18% and 24% depending on income levels.
   2. Earlier, the capital gain tax rate is 10% and 20% for gains other than residential property and 18% and 24% for residential property depending on income levels
5. Indexation: Indexation is discontinued for individuals since 2008.
6. Exemption: UK Government provides capital gains tax free allowance of £ 3000 on residential properties
7. Reinvestments: Reinvestment options are available in UK like Seed Enterprise Investment scheme , Enterprise investment scheme etc

4.iv. Australia

1. Meaning of Capital Asset: As per Australian tax laws, any kind of property including real estate, shares , bonds, Crypto, personal use assets if it costs more than 10000$, foreign currency etc
2. Types of Capital gains: Capital gains are classified into 2 types i.e., short term capital gain and long-term capital gain.
3. Holding period: The holding period in Australia is 12 months to be qualified as long-term. If a person holds any asset for more than 12 months, it is a long-term. If a person holds any asset for less than 12 months, it is a short term.
4. Rate of Taxes: The capital gains in Australia don’t have any special rates of tax. Long-term and short term Capital gains are taxed like any other normal income on their respective slab rates.
5. Indexation: Indexation is available only to assets acquired before 21^st September 1999
6. Exemptions: Australian residents can claim a 50% reduction and pay taxes on only half of capital gains if the asset is held for 12 months or more i.e., on Long-term.
7. Reinvestment: No Reinvestment options available

4.v. Germany

1. Meaning of Capital Asset: As per Germany tax laws, any kind of property including real estate, shares , bonds etc
2. Types of Capital gains: Capital gains are classified into 2 types i.e., Short term capital gain and long-term capital gain.
3. Holding period:
   
   1. STCG- Less than 1 year for shares and other assets and less than 10 years for real estate
   2. LTCG- More than 1 year for shares and other assets and more than 10 years for real estate
4. Rate of Taxes: Short term capital gains and long-term capital gains are taxable at 25%
5. Indexation: Indexation is not available in Germany for long-term capital assets
6. Exemptions: Long-term capital gains on real estate are exempted from tax in Germany
7. Reinvestment: No option for reinvestment

4.vi. Canada

1. Meaning of Capital Asset: As per Canada tax laws, capital asset means any property, shares, bonds etc. The assets can be tangible or intangible.
2. Types of Capital gains: There is no distinction between Short term and long-term capital gains.
3. Holding period: As there is no distinction between short term and long-term capital gains, holding period does not make any difference
4. Rate of Taxes: In Canada only portion of capital gains are taxed.
   
   1. If the capital gains are up to 2,50,000 $ per year, the tax is required to be paid on 50% of capital gain at applicable rates.
   2. If the capital gains are beyond 2,50,000$ per year, the tax is required to be paid on 66.67% of capital gains at applicable rates.
5. Indexation: Indexation is not available in Canada against long-term capital asset
6. Exemption: There is no tax if the Canadian citizens are realizing capital gain on selling their primary residence. Any gain made on sale of residential house is tax free
7. Reinvestments: Registered plans like RRSPs and TFSAs allow tax- deferral or tax-free growth.

4.vii. Singapore

• Singapore does not have any capital gains tax system like many other countries. Hence the definition of capital asset is not defined
• Hence there is no taxes if any one sells the property , shares, bonds or any other assets in Singapore
• However, if anyone has acquired any asset with the intent of making profit, these are taxable

4.viii. France

1. Meaning of Capital Asset: As per France tax laws, Capital asset means any property held by any person which includes real estate, financial assets, movable assets and business assets.
2. Types of Capital gains: There is no distinction between short term capital gains and long-term capital gains
3. Holding Period: As there is no distinction between short term and long-term, holding period is not applicable.
4. Rate of Taxes: The Capital gain tax rates on different for different types of assets
   
   
   1. Real Estate (Properties): The capital gains in sale of real estate are taxed @ 36.2%(19% for income tax + 17.2% for social contributions). However deductions apply based on holding period.
   2. Financial Assets (Shares and Securities): The capital gains on sale of financial assets are taxed @ 30% (12.8% income tax+17.2% social contributions)
   3. Business Assets or Movable Assets: The capital gains on sale of movable assets are taxed @ 36.2%(19% for income tax + 17.2% for social contributions).
5. Indexation: Indexation is not available in France. However taxable gain is reduced based on the holding period in case of real estate.
6. Exemptions: Capital Gains from sale of primary residence is exempt and if any person is holding any asset for more than 22 years, it is exempt
7. Reinvestment Options: France provides for tax deferred plans like PEA and real estate reinvestment with tax deferrals.

4.ix. Italy

1. Meaning of Capital Asset: As per Italy tax laws, capital asset means any asset including real estate, securities, bonds, tangible and intangible assets.
2. Types of Capital gains: There is only short term and capital gains for only real estate. For other types of assets, no classification.
3. Holding period:
   
   
   1. All other assets except Real Estate: There is no distinction between short term capital gains and long-term capital gains. Hence no concept of holding period
   2. For Real Estate: If the asset is held for less than 5 years, it is short term and if it is held for more than 5 years, it is long term
4. Rate of Taxes:
   
   
   1. Capital Gains on all other assets except real estate are taxed @ 26%
   2. Capital gains on real estate (STCG) if held for less than 5 years is taxed as ordinary income and taxed at progressive tax rates ranging from 23% to 43%
   3. Capital gains on real estate (STCG) if held for more than 5 years is exempt from tax
5. Indexation: Indexation is not available for Individuals in Italy
6. Exemptions: Long term capital gains on sale of real estate (held for more than 5 years) is exempt and capital gains from certain government bonds are exempt
7. Reinvestment: Gains reinvested in qualifying business activities may receive tax deferrals or reduction as per Italy tax laws

4.x. Japan

1. Meaning of Capital Asset: As per Italy tax laws, capital asset means any asset including real estate, securities, bonds, tangible and intangible assets.
2. Types of Capital gains: There is only short term and capital gains for only real estate. For other types of assets, no classification.
3. Holding period:
   
   
   1. All other assets except Real Estate: There is no distinction between short term capital gains and long-term capital gains. Hence no concept of holding period
   2. For Real Estate: If the asset is held for less than 5 years, it is short term and if it is held for more than 5 years, it is long term
4. Rate of taxes:
   
   
   1. STCG on Real Estate is taxable @ 39.63% including National and local taxes
   2. LTCG on Real Estate is taxable @ 20.315% including National and local taxes
   3. Gains from Securities is taxable @ 20.315% including National and local taxes.
5. Indexation: Indexation is not available in Japan
6. Exemptions: A person can claim deduction upto JPY 30 million on gains from selling residential house which is used as primary residence.
7. Reinvestment: Tax deferral is available for real estate reinvestment in specific properties and NISA (Nippon Individual Savings Account) allows tax-free gains on certain securities investments.