MUMBAI: Market participants hope for some relief on long-term capital gains (LTCG) tax on securities in the full Union Budget that Finance Minister Nirmala Sitharaman is going to unveil on July 5.
This can help boost capital markets, which have turned lacklustre since January 2018 amid multiple domestic and global headwinds.
Industry leaders hope Sitharaman will remove the LTCG tax completely, or cut the rate. Some others, however, speculate that the exemption limit could be hiked to Rs 2,00,000 from Rs 1,00,000 earlier.
“The re-introduction of LTCG tax did not make a difference in terms of tax revenues, given where the markets have been,” said independent analyst Ambareesh Baliga.
He, however, believes the Finance Minister may not do away with it completely. “It was counter-productive. Reversing it will confirm the government was wrong in introducing it, and it may not want to do that,” he said.
“I don’t think they will do away with it. It was introduced just last year. If it is reversed, what was the purpose of bringing it in last year? Due to the grandfathering clause, it isn’t going to make any difference from tax perspective,” he said.
Punit Shah, partner at Dhruva Advisors, hopes the government would take a relook at the LTCG tax on listed shares and remove it completely.
“There is no official data as to how much the government is making out of these taxes. To my mind, it would not be significant,” Shah said.
Former Finance minister Arun Jaitley re-introduced LTCG tax on gains arising from the transfer of listed equity shares exceeding Rs 1,00,000 at 10 per cent, without allowing any indexation benefit. However, all gains up to 31 January, 2018 were grandfathered. This tax was re-introduced after a gap of 14 years.
“The levy unnecessarily created a lot of issues for foreign investors. Again, there is no data available on the impact. However, when we speak to them, there is reluctance, there is a concern,” said Shah.
One year on, market participants are yet to come to terms with the levy. They argue that the layered taxation regime does not bode well for capital markets.
“Ideally, LTCG is the income on which STT (securities transaction tax) is already paid. On top of that, you are charging LTCG tax,” said Deven Choksey, group managing director, KR Choksey Investment Managers.
“If you are not paying STT, there is a case for LTCG tax. If one is, then it is taxed twice. There should be a change to that effect,” he said.
Others agree and point that multiple tax layers are unhealthy, and not called for. “Introducing LTCG was itself a retrograde step. I am not saying we should not have taxes. But given the fact that we have excessive or multiple layers of taxes on corporate income, plus we have STT,” said Aashish Sommaiyaa, Managing Director and CEO, Motilal Oswal Asset Management.
Sommaiyaa said companies paying dividends from tax-paid income, and then, while paying a dividend, they pay a distribution tax. “Then, when it reaches the investor, anybody with more than Rs 10 lakh of dividend income are again further paying a tax. So, that’s an example of multiple layers of taxation. Plus, we have STT and now we have 10 per cent LTCG,” he said.
Market leaders are also praying that even if it is not lifted, at least the FM does not go for a hike in LTCG tax.
“While I have no idea whether LTCG tax should be 10 per cent, 12 per cent or 15 per cent, but given our overall tax structure, having an LTCG tax itself was a retrograde step. Now, I can just hope it does not go up further,” he said.
Source: Economic Times