The Hindu Business Line : Longevity norms aren’t universal

A canine starts looking haggard at the age of eight because it has by now lived three-fourths of its assigned twelve year sojourn on the terra firma. But a tortoise’s death at the age of 150 perhaps could be mourned by its cohorts as premature and untimely given the fact that a tortoise has a lifespan of 250-300 years often.

Human beings too have different longevity norms depending upon where they live. Tibet by far has the unique distinction of being home to largest number of people past the century mark. No, this isn’t a comparative study of longevity. The point is, if among the living beings longevity norms can be different, there is no reason why we should put inanimate assets in the binary mode if not in the straightjacket of one-size-fits-all norm.

Under the income-tax law, shares, units, etc., become long-term capital assets after twelve months and other assets acquire this distinction after 36 months. The profit made on sale of these assets is described as long term capital gains (LTCG) and are showered with immense munificence by the taxman.

Residential house

LTCG from sale of a residential house, for example, made after three years of acquiring it is exempt from tax if the LTCG thus earned is recycled into another residential house within the prescribed time. Now should a house be deemed to be long-term merely after three years of holding?

To be sure, an immovable property is not bought for such a short term. If it is so done, it normally betrays speculative motives which ought not to get the taxman’s indulgence. Therefore, as a starting point a residential house or for that matter any other immovable property should get the hallowed status of a long-term capital asset only after ten years.

If this sounds harsh, the first sale of a residential house by a person may merit a small concession and it may be conferred this status after five years but all subsequent transactions in immovable property by him must meet the more exacting norm of 10 years. Similarly, intangible intellectual property rights such as trademark, patents, etc., are meant to be treasured or are licensed in return for royalty. Hence once again this category of asset merits a longer term norm, say, 10 years.

Why not three years?

The extant one-year norm for shares should be increased to three years. Many experts believe that if a week is too long a period in politics, three years are too long in the volatile world of stocks. May be, but those who are unable to hold on for three years should not mind paying short-term capital gains (STCG) tax which is a soft but flat 15 per cent.

The extant norm of three years appears to be quite apt for works of art, painting and precious metals and jewellery. Such a painstaking categorisation of assets is called for given the fact that a callous one-size-fits-all regime gives away a whole lot of unmerited tax subsidy.

Gung-ho economists may bristle at this suggestion on the ground that this could stifle free transfer but the truth is one can still make a free transfer — only he cannot land tax concessions.

(The author is a Delhi-based chartered accountant.)

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