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    LTCG surcharge capped: Individuals with income above Rs 2 crore a year get relief

    LTCG surcharge capped: Individuals with income above Rs 2 crore a year get relief

    LTCG surcharge capped: Individuals with income above Rs 2 crore a year get relief
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    By CNBC-TV18  IST (Updated)

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    "I propose to cap the surcharge on long-term capital gains arising on transfer of any type of assets at 15 percent," the finance minister said in her Budget speech for 2022-23.

    Union finance minister Nirmala Sitharaman has announced a cap on the surcharge on long-term capital gains at 15 percent. The move will give a fillip to startups as they would get more investments from venture capital firms and high net worth individuals.
    Currently, long-term capital gains on listed equity shares, units, etc., are liable to a maximum surcharge of 15 percent, Sitharaman said. In contrast, the other long-term capital gains are subjected to a graded surcharge of up to 37 percent if an individual has capital gains of more than Rs 5 crore during the year.
    "I propose to cap the surcharge on long-term capital gains arising on transfer of any type of assets at 15 percent," the finance minister said in her Budget speech for 2022-23.
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    "This step will give a boost to the startup community and, along with my proposal on extending tax benefits to manufacturing companies and startups, reaffirms our commitment to Atmanirbhar Bharat," Sitharaman said.
    This announcement gives some relief to individuals with income above Rs 2 crore a year. However, a specific tax regime was introduced for income from virtual digital assets to be taxed at the rate of 30 percent with no deduction for any expenditure except the cost of acquiring such assets.
    The removal of surcharge of up to 37 percent will help startup workers and domestic venture capitalists sell unlisted shares. This would set off a cycle of more investments in the ecosystem.
    Another taxation benefit given to the startup sector in the Union Budget 2022-23 is the extension of the eligibility criterion to avail tax incentives by one more year. The beneficial rate of the surcharge shall also apply to an Association of Persons (AOP).
    Sitharaman pointed out that several works contracts terms and conditions require the formation of a consortium mandatorily whose members are generally companies.
    She said in such cases, the income of these AOPs has to suffer a graded surcharge up to 37 percent, which is a lot more than the surcharge on the individual companies. Therefore, Sitharaman proposed to cap the surcharge of these AOP’s at 15 percent.
    "Parity of taxation between listed and unlisted long-term capital gains has been a long-standing ask of the private equity industry, and while the base rate remains unchanged, the surcharge has been capped at 15 percent for unlisted long-term capital gains. This, hopefully, is the first step towards achieving parity," Ashley Menezes, partner and chief operating officer, ChrysCapital, and head of regulatory affairs, IVCA, told CNBC-TV18.
    "With the proposed amendment capping the surcharge to 15 percent, the effective capital gains tax rate for resident investors may get reduced up to 2-4.5 percent," said Kunal S Savani, Partner Tax and PCP, Cyril Amarchand Mangaldas.
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