At present, long term capital gain is taxed @ 20% in pursuance of the provisions of section 112. Whereas, in case of individual assessee having normal income, the rate of tax upto Rs. 5,00,000 is only 10%. This leads to a situation where in case if one’s gain from transfer of long term capital asset is below Rs. 5,00,000 then also he is required to pay tax @ 20% plus cess as per section 112 whereas his tax liability otherwise would be much lesser.
Similar is the situation in case of short term capital gain by way of sale of equity shares as provided u/s 111A, where the tax rate is 15% which is more than the minimum rate of tax payable by the individuals.
It is suggested that appropriate provisions be made in the Act whereby the tax liability of an individual whose taxable income consists of only long term or short term capital gain, should not in any case, exceed the amount of tax liability calculated deeming the capital gain as regular
income. This can be done by making the provisions of Section 111A & 112 optional.