Long-term capital gains tax on stocks stages a comeback after gap of 14 years

Mumbai: While the government has doled out sops for some sector, it came down hard on a few others. For equity investors there were negative surprises as the government re-introduced long-term capital gains (LTCG) tax after a gap of 14 years. The budget proposed to levy 10 per cent LTCG on profits of more than Rs 1 lakh on shares and other equity-oriented investments like units of mutual funds.

Till now, such gains were entirely exempt from taxes, while a flat 15 per cent rate was applicable on short-term capital gains profits made on investments held for less than a year.

While this move will enable the government to collect tax on sale of securities of listed entity, there are two important aspects on sale of securities which the government failed to consider including non-levy of the securities transaction tax (which was introduced in the finance Budget of 2004 in lieu of the tax on long term capital gain), and making available the indexation benefit on securities held for more than one year.

Shanti Ekambaram, President – Consumer Banking, Kotak Mahindra Bank Ltd said, “the much- discussed and awaited Long Term Capital Gains tax was also announced. In what is a fair move, the 10% LTCG tax is applicable on an incremental basis and all holdings as on Jan. 31, 2018 would be grandfathered and valued at prices on that day. However, Securities Transaction Tax was not reduced. The introduction of dividend distribution tax on equity mutual funds was a surprise.”

There was disappointment for corporate sector. While the budget also has addressed the woes of MSME segment by extending the concessional tax of 25 per cent to MSMEs up to Rs 250 cr turnover, the large corporates will not get that benefit.

Corporate sector was expecting that the government would reduce the corporate tax rate, in line with what was announced three years ago.