1. Budget 2018: Will rising fiscal deficit prompt Arun Jaitley to raise LTCG holding period in equities to 2 years?

Budget 2018: Will rising fiscal deficit prompt Arun Jaitley to raise LTCG holding period in equities to 2 years?

Budget 2018 will be tabled in Parliament on February 1. Finance Minister is expected to increase the holding period of LTCG from equities to over two years from one year at present and this would automatically come at par with the holding period that already exists for unlisted shares and transactions in real estate.

By: | Updated: January 20, 2018 12:24 AM
Budget 2018 may see government increasing LTCG holding period in equities. Budget 2018 may see government increasing LTCG holding period in equities.

Budget 2018 will be tabled in Parliament on February 1. Finance Minister Arun Jaitley is expected to increase the holding period of LTCG from equities to over two years from one year at present. With this, the long-term holding period of equities would automatically come at par with the holding period that already exists for unlisted shares and transactions in real estate. At a meeting with Prime Minister Narendra Modi last week ahead of Budget 2018, several economists were of the view that the government should increase tax incidence on gains in the equity market — which currently enjoy the lowest tax rate, The Indian Express reported citing unidentified sources. The decks for roll out of LTCG tax currently 0 percent on equities, have been cleared since 2009, however, the previous UPA government and the current NDA government have refrained from implementing it in order to boost equity investments. However, with the rising fiscal deficit, the government may look to introduce LTCG on equities in the Budget 2018. The government was losing an estimated Rs 49,000 crore in taxes from LTCG exemption, the BSE said recently. The fiscal deficit breached the budgeted level to touch 112 percent of the full-year target in just first eight months, reinforcing concerns about a slippage in 2017-18.

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Short-term capital gains (STCG) from the sale of shares within a year are currently taxed at 15 percent while the long-term capital gains (LTCG) from the sale of shares after one year are tax-free. “Bringing long-term capital gains tax in Budget 2018 should depend on risk capital requirement and capital formation in the economy. For developed economies where capital formation is complete long-term capital gains tax should not be exempted but for a country like ours where capital formation is important for the growth of the economy, the benefit should continue. It will also benefit retail investors who are now entering equity markets,” said CJ George, MD, Geojit Financial Services.

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“We expect a change in holding period for LTCG in Budget 2018. At present it is 1 year, this could be increased. Tinkering with LTCG in Budget 2018 could see market reacting adversely. Though buying could emerge at the lower level due to higher liquidity,” told Asif Iqbal of Escorts Securities to FE Online. While some sections of market players are calling for abolishing Securities Transaction Tax (STT) and bringing in long-term capital gains tax in Budget 2018, others think it will only benefit the stock exchanges and brokers who benefit when the trading volumes rise.

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“I don’t think that LTCG will be introduced again, if introduced in Budget 2018 then the existence of STT will be in questions. Government is earning around Rs 7500-8000 crore since last 3 years through STT. The government may widen the long-term definition for shares from 1 year to 2 years,” Vivek Mittal of Corporate Scan tells FE Online.

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