Budget 2018: Market takes LTCG on equities in its stride

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Published: February 2, 2018 3:17:30 AM

Budget 2018: The markets went on a roller-coaster ride on Thursday after finance minister Arun Jaitley announced imposition of long-term capital gains tax on equities.

Budget 2018: Jaitley, in his Budget 2018 speech, announced a 10% tax on long-term capital gains for all investors, including foreign institutions, on gains above Rs 1 lakh en-cashed after a year from the date of investment.Budget 2018: Jaitley, in his Budget 2018 speech, announced a 10% tax on long-term capital gains for all investors, including foreign institutions, on gains above Rs 1 lakh en-cashed after a year from the date of investment.

Budget 2018: The markets went on a roller-coaster ride on Thursday after finance minister Arun Jaitley announced imposition of long-term capital gains tax on equities. The Sensex saw an intra-day movement of 755 points with a high of 36,256.83 and a low of 35,501.70, before ending the day 0.16% lower than the previous close at 35,906.66. The Nifty shed 0.10% to 11,016.90. With this fall, the benchmark indices have now declined for three consecutive sessions. While domestic institutions were net sellers in the market (provisional sales of Rs 358 crore), foreign institutions were net buyers (provisional net purchases of Rs 1,010 crore). Jaitley, in his Budget 2018 speech, announced a 10% tax on long-term capital gains for all investors, including foreign institutions, on gains above Rs 1 lakh en-cashed after a year from the date of investment. He also extended the levy to mutual funds and imposed a 10% tax on dividends distributed by equity-oriented mutual funds.

Watch: Budget 2018: How it affects auto sector, car prices & motorists

He said the total amount of exempted capital gains from listed shares and units is around Rs 3,67,000 crore for the assessment year 2017-18.  The government has reintroduced long-term capital gains without allowing any indexation benefit. However, all gains up to January 31, 2018 will be grandfathered, implying only gains after the date will be taxable. Market sentiment was also impacted by a higher than expected fiscal deficit for 2017-18, pegged at 3.5% of GDP. The target for 2018-19 has been fixed at 3.3%, well above the earlier 3% targeted for next fiscal. “The stated fiscal deficit target at 3.3% may fall short of expectations and may result in headwinds, which may impact inward investments and the cost of capital for Indian corporates.

Read: Budget 2018 impact: Here is how you will save, invest, borrow, and insure; all you want to know

Income Tax Calculator: Find out how Budget 2018 will impact your finances

However this should be viewed in terms of the longer-term goal and stated intent to bring this down to manageable levels,” said Sai Venkateshwaran, Partner, and Head- Accounting Advisory Services, KPMG in India. Though the benchmark indices crashed by 463 points or 1.3% intra day, it pared most of its losses by close. Market participants expressed their  displeasure at the reintroduction of long-term capital gains tax even while keeping the securities transaction tax intact.

-Sundar Sethuraman & Yoosef KP

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