Capital Gains Tax Rates Table #
The below table provides a comparative overview of how the world’s largest economies by market capitalization tax capital gains.
| Country | Short-Term Capital Gains (STCG) | Long-Term Capital Gains (LTCG) | Holding Period for LTCG |
|---|---|---|---|
| United States | Taxed as ordinary income (10-37%) | 0%, 15%, or 20% (based on income) | >1 year |
| China | 20% | 20% | No distinction |
| Japan | 20.315% (incl. local taxes) | 20.315% (incl. local taxes) | No distinction |
| United Kingdom | 10% (basic rate); 20% (higher/additional rate) | 10% (basic rate); 20% (higher/additional rate) | No distinction |
| Hong Kong | 0% | 0% | No distinction |
| France | 30% flat tax (or progressive scale + 17.2% social charges) | 30% flat tax (or progressive scale + 17.2% social charges) | No distinction |
| Canada | 50% of gains taxed at income rate | 50% of gains taxed at income rate | No distinction |
| India | 15% + surcharge & cess | 10% above ₹1 lakh + surcharge & cess | >1 year (equity); >2 years (property) |
| Germany | 26.375% (incl. solidarity surcharge) | 26.375% (incl. solidarity surcharge) | No distinction |
| Switzerland | 0% for private investors; taxed as income for professionals | 0% for private investors; taxed as income for professionals | No distinction |
| Australia | Taxed as ordinary income | 50% discount on taxable gain | >1 year |
| South Korea | 22% (for gains >KRW 300M) | 22% (for gains >KRW 300M) | No distinction |
| Taiwan | 15-20% | 15-20% | No distinction |
| Netherlands | ~31% on deemed return | ~31% on deemed return | No distinction |
| Saudi Arabia | 0% for local investors; 20% for foreign investors | 0% for local investors; 20% for foreign investors | No distinction |
| Brazil | 15-22.5% (rate increases for shorter holding periods) | 15% | >2 years |
| Singapore | 0% | 0% | No distinction |
| Sweden | 30% | 30% | No distinction |
| Spain | 19% to 26% (progressive) | 19% to 26% (progressive) | No distinction |
| Italy | 26% (12.5% for government bonds) | 26% (12.5% for government bonds) | No distinction |
Tax rates are current as of October 2024
Few key observations:
- Several financial hubs like Hong Kong and Singapore have 0% capital gains tax to attract investment.
- The US has one of the more complex systems, with significant tax advantages for long-term holdings.
- Most countries don’t distinguish between short and long-term capital gains.
- Tax rates vary widely, from 0% to over 30% depending on the country.
- Many countries have additional nuances like income-based progressive rates, surcharges, or different treatment for various asset classes.
How does India compare with others? #
Dual Rate Structure: India is among the minority of countries that clearly differentiates between short-term (STCG) and long-term capital gains (LTCG), similar to the US but unlike many European and Asian markets.
Asset-Specific Treatment: India has different holding period requirements for different asset classes (1 year for equity, 2 years for property, 3 years for debt funds), which is more complex than many other jurisdictions.
Tax Rates:
- India’s STCG rate of 15% (plus surcharges) on equities is relatively moderate globally
- The LTCG rate of 10% (with a ₹1 lakh exemption) is in the mid-range internationally
Indexation Benefits: For certain assets, India allows inflation indexation to reduce tax liability on long-term gains, which is a taxpayer-friendly feature not available in many countries.
Surcharge System: India’s additional surcharges for high-income individuals (up to 37% for the highest bracket) can significantly increase the effective tax rate, making the system more progressive than flat-rate systems.
Comparison Points:
- More tax-friendly than countries like France (30% flat tax) or Sweden (30%)
- Less favorable than tax havens like Singapore and Hong Kong (0%)
- Similar complexity to the US but with different rate structures
- More complex than countries with simple flat-rate systems like Germany (26.375%)
Securities Transaction Tax (STT): India has an additional STT, which is relatively uncommon globally. This creates a layered taxation approach that few other major economies use.
India’s capital gains tax system represents a middle ground - neither the most favorable nor the most punitive globally, but with distinctive features designed to balance revenue generation with investment incentives.
How favorable is this structure for investors from a developing economy point of view? #
Favorable aspects:
Differential treatment for long-term investments: The lower LTCG rates (10% for equities) encourage patient capital, which is beneficial for a developing economy needing stable, long-term investments.
Exemption threshold: The ₹1 lakh exemption on LTCG provides relief to small and retail investors, supporting broader market participation.
Indexation benefits: For certain assets, inflation indexation reduces the tax burden on long-term gains, which is particularly relevant in a developing economy with potentially higher inflation rates.
Progressive structure: Higher surcharges on wealthy individuals add a social equity dimension while keeping base rates moderate.
Less favorable aspects:
Complexity: The system’s complexity with different rates, holding periods, and surcharges increases compliance costs and may deter some foreign investors unfamiliar with the structure.
Higher than regional competitors: Compared to regional investment destinations like Singapore (0%) and Hong Kong (0%), India’s rates are higher, potentially affecting regional competitiveness.
Securities Transaction Tax (STT): The additional layer of taxation through STT creates a higher effective tax burden than nominal rates suggest.
Frequent policy changes: Historically, India has made frequent changes to its capital gains tax regime, creating policy uncertainty that can be concerning for investors.
The current structure is reasonably balanced for India’s development stage, but there’s room for improvement in simplification and stability to better attract both domestic and foreign investment while maintaining adequate revenue generation for development needs.