Capital Gains Tax

News:

• Following outrage from certain quarters over the Budget proposal to remove indexation benefits on long-term capital gains (LTCG), the government decided to offer taxpayers a choice to pay 20% LTCG tax with indexation benefit on sale of property acquired before July 23, 2024.

Capital Gains Tax:

• Any profit or gain that arises from the sale of a ‘capital asset’ is known as ‘income from capital gains’.
• Such capital gains are taxable in the year in which the transfer of the capital asset takes place. This is called capital gains tax.
• There are two types of Capital Gains:
• Short-term capital gains (STCG)
• Long-term capital gains (LTCG)

Capital Assets:

• Land, building, house property, vehicles, patents, trademarks, leasehold rights, machinery, and jewellery are a few examples of capital assets.
• This includes having rights in or in relation to an Indian company.
• It also includes the rights of management or control or any other legal right.

Exemptions:

• Any stock, consumables or raw material, held for the purpose of business or profession.
• Personal goods such as clothes and furniture held for personal use.
• Agricultural land in rural India.

Types of Capital Assets:

STCA (Short-term capital asset):

• An asset held for a period of 36 months or less is a short-term capital asset.
• So, if you sell the asset within a period of 36 months of purchasing, then it would be called as a short-term capital asset.
• However, in some of the assets, the holding period is reduced to 24 months and 12 months.

LTCA (Long-term capital asset):

• An asset held for more than 36 months is a long-term capital asset.
• In some of the assets, the applicable holding period is 24 months and 12 months.

Budget 2024 Update:

• For classifying assets into long-term and short-term, there will only be two holding periods: 12 months and 24 months.
• The 36-month holding period has been removed.
• The holding period for all listed securities is 12 months.
• All listed securities with a holding period exceeding 12 months are considered Long-Term.
• The holding period for all other assets is 24 months.
• The tax on long-term capital gains on other financial and non-financial assets is reduced from 20% to 12.5%.
• While on the other hand, the indexation benefit that was previously available on sale of long-term assets, has now been done away with.
• So, any sale of long term asset made after 23rd July, 2024, will attract tax rate of 12.5% only without indexation benefit.

Indexation:

• It is a mechanism used to adjust the original purchase price of an asset to account for inflation.
• It helps in calculating the real gains and prevents inflation from inflating the tax liability.
• The adjusted purchase price is called the indexed cost of acquisition.

Grandfathering:

• It is a provision that allows an old rule or law to be applicable to some or all situations up to a certain date, while the new rule or law is applicable to all situations after that date.

Benefits of done away with indexation for computing long-term capital gains (LTCG) tax:

• Simplification of Tax Computation: Finance Minister proposed the change to “ease computation of capital gains for the taxpayer and tax administration.”
• Uniform Tax Rate: Long-term gains on all financial and non-financial assets would now be taxed at a flat rate of 12.5%, replacing the previous tiered structure.
• High real estate return: The Income Tax department believes that the real estate returns (12-16% per annum) are higher than indexation for inflation (4-5%). Thus, it predicts “substantial tax savings” for a “vast majority” of taxpayers under the new system.

Concerns:

• Increased Tax Liability: Stakeholders expressed apprehension that the removal of indexation would lead to higher tax obligations for ordinary investors, particularly in the real estate sector.
• There are fears that this might encourage the undervaluation of properties to reduce capital gains tax and potentially increase black money transactions in real estate.
• Real Estate: Removal of indexation might not significantly impact demand and prices, especially for primary home buyers, high-end properties could see a drop in demand.

Way forward:

• Need to strengthen monitoring mechanisms to prevent the undervaluation of properties and reduce black money transactions.

International Criminal Court (ICC)

News:

• On July 26, Britain abandoned its intent to challenge the prosecutor’s application for arrest warrants before the International Criminal Court (ICC) against Israel’s Prime Minister Benjamin Netanyahu and Defence Minister Yoav Gallant.
• Previously, the Conservative government opposed the ICC’s application for arrest warrants on Israeli leaders.
• In the wake of the removal of Britain’s objections to the prosecutor’s actions, it may be a matter of time before the ICC issues arrest warrants.

About ICC:

• It investigates and, where warranted, tries individuals charged with the gravest crimes of concern to the international community:
• Genocide
• War crimes
• Crimes against humanity
• Crime of aggression
• It is participating in a global fight to end impunity, and through international criminal justice, the Court aims to hold those responsible accountable for their crimes and to help prevent these crimes from happening again.
• ​​It cannot reach these goals alone. As a court of last resort, it seeks to complement, not replace, national Courts.
• Governed by an international treaty called the Rome Statute, the ICC is the world’s first permanent international criminal court.

Working:

• The Court’s founding treaty, called the Rome Statute, grants the ICC jurisdiction over four main crimes.
• Genocide: Crime of genocide is characterised by the specific intent to destroy in whole or in part a national, ethnic, racial or religious group by killing its members or by other means.
• Crimes against humanity: ICC can prosecute crimes against humanity, which are serious violations committed as part of a large-scale attack against any civilian population.
• War crimes: Grave breaches of the Geneva conventions in the context of armed conflict.
• Crime of aggression: It is the use of armed force by a State against the sovereignty, integrity or independence of another State.

Jurisdiction:

• The Court may exercise jurisdiction in a situation where genocide, crimes against humanity or war crimes were committed on or after 1 July 2002 and:
• The crimes were committed by a State Party national, or in the territory of a State Party, or in a State that has accepted the jurisdiction of the Court; or
• The crimes were referred to the ICC Prosecutor by the United Nations Security Council (UNSC) pursuant to a resolution adopted under chapter VII of the UN charter.

Complementarity:

• The ICC is intended to complement, not to replace, national criminal systems; it prosecutes cases only when States do not unwilling or unable to do so genuinely.

Cooperation:

• As a judicial institution, the ICC does not have its own police force or enforcement body; thus, it relies on cooperation with countries worldwide for support.
• While not a United Nations (UN) organization, the Court has a cooperation agreement with the United Nations.
• When a situation is not within the Court’s jurisdiction, the United Nations Security Council can refer the situation to the ICC granting it jurisdiction.
• This has been done in the situations in Darfur (Sudan) and Libya.
• The Court cooperates with both States Parties and non-States Parties.
• The Court works in particularly close cooperation with its host state, the Netherlands.

Other facts:

• The court does not prosecute those under the age of 18 when a crime was committed.
• The defendant is considered innocent until proven guilty. The burden of proof lies with the Prosecutor.

Organization:

• The Rome Statute established three separate bodies:
• Assembly of States Parties
• International Criminal Court
• Trust Fund for Victims.
• Assembly of States Parties: Representatives of States Parties meet and provide management oversight for the Court, including electing judges and the Prosecutor and approving the ICC’s budget.

States Parties to the Rome Statute:

• States Parties support the Court, accept the ICC’s jurisdiction, and also work to incorporate the rules stipulated in the Rome Statute into their own judicial systems.
• States Parties to the Rome Statute gather at least once a year at sessions of the Assembly of States Parties, to provide the management oversight for the Court, for example, by establishing the budget, providing funding and also electing the Court’s judges and Prosecutor.

Rome statute:

• The Rome Statute of the International Criminal Court is the treaty that established the International Criminal Court (ICC).
• It was adopted at a diplomatic conference in Rome, Italy in 1998 and it entered into force on 1 July 2002.
• As of February 2024, 124 states are party to the statute.
• It establishes court function, jurisdiction and structure.

Venezuela

News:

• Venezuela’s petrostate model and U.S. sanctions have led to a severe reversal of fortunes.
• According to the IMF, Venezuela’s real GDP saw the most protracted contraction in modern history during the last decade. Between 2013 and 2021, the economy contracted by 75%, the largest for any country not at war.

Nicolas Maduro:

• On July 28, Venezuela’s President Nicolas Maduro returned to power after a controversial election.
• He oversaw an economy that descended into a free fall in his 11 years in power.

Developments over the decades:

• Economy: In the 20th century Venezuela was transformed from a relatively poor agrarian society to a rapidly urbanizing one, a condition made possible by exploiting huge petroleum reserves.
• Inflation: The country’s annual inflation rate skyrocketed to five digits, along with shortages of basic supplies.
• Its inflation spiralled to a peak of 65,374% resulting in hyperinflation in 2018 and remained in more than three digits for nine years.
• Hugo Chávez: Since 1999, which heralded the era of Chavismo with Mr Maduro’s predecessor, the late Hugo Chavez, coming to power, the country dropped on the liberal democracy index and underwent a rise on the corruption index.
• Mr Chavez’s rise coincided with a popular movement against the entrenched two-party system.
• Venezuela slid down the democracy index and touched new highs on bribery indices.
• Petroleum reserves: Venezuela sits on the world’s largest crude reserves.
• Venezuela’s petroleum exports formed about 80% of the country’s exports and remained in the range, 70% to 96%, between 1960 and 2023, making the country a “petrostate”.
• Petroleum exports also amount to 14% of the country’s GDP (as of 2023) and until 2019 remained over and above the 20% mark.
• Sanctions by the US: Venezuela was the highest producer of crude among OPEC countries until 1969. But as of 2023, it ranks 9th in crude production.
• The production of crude oil has reduced significantly over time.
• The drastic production cuts are directly linked to the sanctions imposed by the Donald Trump-led U.S. regime in 2017, a time when oil prices recovered globally.
• Current spike in oil prices has not seen a commensurate rise in exports and imports due to the imposition of sanctions by the U.S.
• Since 2023, following the Barbados agreement, the U.S. eased some of its sanctions and this allowed an increase in exports.

However, the subsequent measures by the Mr Maduro regime to ban Opposition candidates resulted in a re-imposition of sanctions.

• Humanitarian and economic conditions have triggered a mass exodus, with as many as 7.7 million Venezuelans fleeing the country.

Venezuela: Key facts

Geography and Location:

• Located at the northern end of South America.
• Boundaries: Bounded by the Caribbean Sea and the Atlantic Ocean to the north, Guyana to the east, Brazil to the south, and Colombia to the southwest and west.
• The national capital, Caracas, is Venezuela’s primary centre of industry, commerce, education, and tourism.
• Venezuela incorporates:
• Northern Andean mountain chains
• Main portions of the Orinoco River basin with its expansive Llanos (plains)
• Lake Maracaibo: Largest lake in South America
• Angel Falls: World’s highest waterfall.

Guyana-Venezuela Conflict:

• Since the early 19th century Venezuela has claimed jurisdiction over Guyanese territory west of the Essequibo River, nearly two-thirds of the land area of Guyana.
• Guyana submitted the dispute to the International Court of Justice in 2018.