The government may increase the holding period for equity shares under ‘long term capital gains’ category to two years in the upcoming Union Budget 2017, from one year at present, in order to bring the holding requirement at par with that for unlisted shares, ET Now reported on Monday.
However, the government is unlikely to reintroduce tax on long term capital gains in listed equity shares, ET Now said citing unidentified sources.
In India, short term capital gains are imposed at a rate of 15% on profits from equity shares sold within one year of purchase, but held for over a year before selling qualify for ‘long term capital gains’ and are not liable for tax.
Earlier, Prime Minister Narendra Modi had said that people making profits through buying and selling securities in capital markets must also contribute to the nation building by paying taxes, fuelling speculation that the government may impose long term capital gains tax on listed equity shares.
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ET Now said the proposed move is aimed to bring long term capital gains requirements for listed shares at par with unlisted shares. Last year, in the Union Budget 2016, the government had proposed to reduce the long term capital gain holding period requirement for unlisted equity shares to two years from three years earlier.
Further, the government is also seeking to prevent flight of capital, especially to the US, in times of volatility with the change in the definition of long term capital gains for listed equity shares, ET Now said, adding, it will ensure a level playing field between domestic and foreign investors.
The changed definition will coincide with the introduction of General Anti Avoidance Rules, due to be introduced from April 1, 2017. This will ensure that any changes in taxation structure of capital gains apply evenly to the domestic and global investors.
The government has already amended the tax treaties with Mauritius, Cyprus and Singapore, plugging a key loophole exploited by foreign players to save payment of taxes on even short term capital gains on transaction in Indian shares.