Structure and Reform of Capital Gains Taxation in India

Taxation of capital gains has been a controversial issue. The controversy revolves around the issue as to whether capital gains are income or not. Income tax is a tax on income and is not meant to be a tax on anything else. The argument against the taxation of capital gains, according to accounting and commercial concepts, is that it is not an income and that capital gains are unexpected and unsought, and as such cannot form part of taxable income. The argument for taxing capital gains is based on equity and efficiency considerations. Despite the controversy surrounding the chargeability of capital gains, tax on capital gains is levied in India. The issue, therefore, is how the capital gains tax is computed. The present paper attempts to evaluate the structure and reforms of capital gains taxation in India. After going through the evaluation of tax on capital gains, the study concludes that the taxation of capital gains in India has failed in its real objective to raise revenue in an efficient manner, to plug the possible leakages in tax collections, to use the capital gains tax provisions as social welfare measure and also as an incentive to give direction and growth to the economy.