Capital Gains Conundrum: How Many Taxpayers Actually Declare Income?
The recent Union Budget announcement on capital gains tax has sparked a debate, but data shows that only a small percentage of taxpayers declare such income.
Capital GainsTaxationUnion BudgetLtcgStcgSharesMutual FundsReal EstateReal Estate NewsAug 11, 2024
According to data, only about 4 million taxpayers declared any kind of capital gains income in 2022-23, which is barely 5% of all taxpayers. The Budget set a uniform 12.5% tax rate on long-term capital gains (LTCG) for all assets but took away the benefit of adjusting the cost of a property for inflation (or ‘indexation’).
Under intense pressure, the government allowed taxpayers who bought a property before the Budget announcement to choose between paying tax under the old regime (20% tax rate with indexation benefits) or the new regime. However, for stocks, the increase in LTCG remains.
One reason for the increase in LTCG is the galloping share prices in recent years. The government had every incentive to tax gains on the sale of stocks, mutual funds, and other assets. Capital gains, both long- and short-term, have grown sharply.
In 2022-23, income declared as LTCG was 7.3 times that declared as STCG (short-term capital gains). As a result, the share of capital gains in total declared income increased from 4.4% in 2019-20 to 11.6% in 2021-22, although it dropped to 9.5% in 2022-23.
Companies, rather than individuals, are driving this surge in capital gains income. In 2012-13, about half of the capital gains income was declared by individuals, but in 2022-23, the share of individuals had dropped to about 31%. Companies and other types of entities are increasing in prominence in this expanding pie.
The importance of capital gains as a source of income for companies has increased sharply in recent years. Since 2018-19, the share of capital gains in overall income declared by companies has almost doubled, from 7.6% to 13.7% in 2022-23.
The jump in capital gains income for all classes of taxpayers has tracked the explosion in markets since covid. Between March 2020 and March 2023, the Nifty 50 surged 90%. By comparison, between April 2011 and April 2020, the index rose 55%.
After doubling for two successive years, capital gains income declared in 2022-23 declined by 6%. In 2023-24, the difference between the lowest monthly average and the highest monthly average of Nifty 50 was 25%, against 15% in 2022-23. So, expect a jump in capital gains income to be declared for 2023-24 as well.
Capital gains are highly skewed, with about 55% of the capital gains income declared by individual taxpayers coming from just 30,608 individuals in 2022-23. These individuals declared capital gains income of ₹1 crore or more for that financial year.
Overall, positive capital gains income, either long- or short-term, is declared by relatively few taxpayers. For 2022-23, about 71 million out of 75 million individual taxpayers (95%) declared no capital gains income at all. Among companies, 97% declared no capital gains income. Among HUFs (Hindu undivided families), this share was 92%.
Frequently Asked Questions
How many taxpayers declared capital gains income in 2022-23?
About 4 million taxpayers declared capital gains income in 2022-23, which is barely 5% of all taxpayers.
What is the uniform tax rate on long-term capital gains (LTCG) for all assets?
The uniform tax rate on LTCG for all assets is 12.5%.
What is the share of capital gains in total declared income for companies?
The share of capital gains in overall income declared by companies has almost doubled, from 7.6% to 13.7% in 2022-23.
How many individual taxpayers declared capital gains income of ₹1 crore or more in 2022-23?
About 30,608 individual taxpayers declared capital gains income of ₹1 crore or more in 2022-23.
What percentage of individual taxpayers declared no capital gains income in 2022-23?
About 71 million out of 75 million individual taxpayers (95%) declared no capital gains income in 2022-23.
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