Article

A comparative look at India's LTCG rates in tandem with peers like UAE, Singapore, China, USA and others

By:
Akhil Chandna,
Sarthak Prashar
26 Jul 20245 min read
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The Union Budget 2024 significantly altered India's capital gains tax regime. LTCG tax rates rose from 10% to 12.5%, and the indexation benefit was removed. These changes aim to simplify the tax system and align India with global standards, making it a competitive investment destination for domestic and international investors.

The Union Budget 2024 introduced significant changes to the capital gains tax regime in India, which have sparked considerable discussion among investors and financial experts. The Long-Term Capital Gains (LTCG) tax rate has been increased from 10% to 12.5% for all financial and non-financial assets, and the indexation benefit, which allowed investors to adjust the purchase price of an asset for inflation, has been removed for capital assets.

The adjustments to India’s capital gains tax rates reflect a move towards a more streamlined and globally competitive tax regime. While the removal of the indexation benefit may pose challenges for investors, the overall changes are designed to simplify the tax system and provide greater predictability. Compared to other countries, India’s new LTCG rates are competitive and align well with international standards, making it an attractive destination for both domestic and international investors.

Investing internationally offers Indian investors a chance to diversify their portfolios and tap into global growth opportunities. However, understanding the LTCG tax rates in various countries is crucial for making informed and sound investment decisions.

The below chart depicts an overview of LTCG tax rates in prominent countries where Indian investors often seek to invest:

Country Tax Rates (basis the information available publicly)
India W.e.f. 23 July 2024:
  • Sale of equity-oriented shares/ mutual funds - 12.5% (in excess of INR 1,25,000)
  • Sale of all other assets -12.5%
Australia
  • 50% of the capital gain constitutes a taxable capital gain if asset is held for more than 12 months which is included in the individual's income and taxed at regular personal income tax slab rates
Cambodia
  • Cambodia does not have distinct capital gains taxes
  • Sale of real estate property and other assets considered as ordinary income and taxed at the prevailing income tax rates
However, a 20% tax is expected to be implemented by the end of 2024
Canada
  • 50% of the capital gain constitutes a taxable capital gain, which is included in the individual's income and taxed at regular personal income tax slab rates
The said 50% is proposed to increase to 2/3rd for the portion of capital gains realised by individuals after 24 June 2024 that exceeds annual CAD 2,50,000 threshold
China
  • Capital gains from the sale of shares listed on Chinese stock exchanges are provisionally exempt from tax
  • 20% flat tax rate on the transfer of capital assets such as securities, equity interests, land use rights, buildings, equipment, and vehicles
Germany
  • 25% increased by 5.5% solidarity surcharge and 8% / 9% church tax depending on the federal state which both are based on the amount of capital gains tax.
Indonesia
  • 2.5% on the taxable sale value or the actual proceeds, whichever is higher on sale of land and/or buildings located in Indonesia
  • 0.1% final tax on the sales proceeds on sale of shares traded in the Indonesia Stock Exchange
  • For all other types of assets, capital gains are included in the individual's income and taxed at regular personal income tax slab rates
Malaysia
  • No capital gains tax on the sale of shares
  • Tax up to 30% depending on the holding period of the property, with higher rates for properties held for shorter periods
  • A Real Property Gains Tax (RPGT) on the disposal of real property and shares in real property companies is levied subject to certain exceptions/ exemptions for the Malysia citizens/ permanent residents of Malaysia
Philippines
  • 5% to 15% depending upon the amount of capital gain and status of the transferor on sale of shares not traded on the stock exchange
  • 6% of the gross selling price or fair market value, whichever is higher on sale of real estate
  • Income from sale of capital assets other than above is included in the individual's income and taxed regular personal income tax slab rates
Singapore
  • No capital gains tax
Thailand
  • 0% to 35%, depending on the income bracket which varies significantly based on the investor’s total income.
United Arab Emirates (UAE)
  • No capital gains tax
United Kingdom (UK)
  • Up to 20% on sale of capital assets other than residential property gains /carried interest gains
  • Up to 24% on sale of residential property gains
  • Up to 28% on carried interest gains
Additionally, UK provides an annual tax-free allowance, known as the Annual Exempt Amount (AEA) of GBP 3,000
United States (US)
  • 0%, 15% & 20% - depending on the taxable income and filing status of the individual
Additionally, there is a surcharge of 3.8% known as Net Investment Income Tax (NIIT) for high-income earners when income exceeds a certain limit
Vietnam
  • Tax Residents - 20% on net gain
  • Tax Non-Residents - 0.1% of sale proceeds

The changes in India’s LTCG tax rates, i.e., the increase to 12.5% and the removal of the indexation benefit, bring India’s tax regime closer to global standards. The new 12.5% LTCG rate in India is still lower than the tax rates than other countries such as US, UK, Thailand, Malaysia etc. as discussed above.

Further, the increase in the exemption limit to INR 1.25 lakh provides relief to small investors, aligning with the exemption thresholds seen in other countries like the UK’s annual exempt amount.

Countries like Singapore and the UAE, which do not impose a capital gains tax, remain more attractive from a tax perspective, but India’s rates are competitive within the broader global context. The changes aim to balance revenue generation with the need to maintain an attractive investment environment.

To conclude, it’s important for an Indian investor intending to diversify their portfolios internationally to make note of LTCG tax rates as applicable in various countries. Each country has its own set of rules and rates, which can significantly impact the overall returns on investment. This holistic view of LTCG rates around the world can help Indian investors strategically plan their investments and optimize their returns.

This article first appeared in The Economic Times on 26 July 2024.

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Authors
  • Akhil-Chandna.jpg
    Akhil Chandna Partner, Grant Thornton Bharat
  • Sarthak Prashar
    Sarthak Prashar Associate Director, Grant Thornton Bharat