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  1. Budget 2018: Will FM Arun Jaitley bring LTCG on equities?

Budget 2018: Will FM Arun Jaitley bring LTCG on equities?

Budget 2018: Even as the date for Union Budget 2018 nears top market voices say that Finance Minister Arun Jaitley may consider LTCG on equities. So far, Tax free LTCG has been a key driver for investments in equities. We take a look at what experts have to say on the issue.

By: | Updated: January 24, 2018 2:52 PM
arun jaitley invited asean, asean arun jaitley, arun jaitley invited investors, arun jaitley vows investors Budget 2018: With the rising fiscal deficit, the government may look to introduce LTCG on equities in the Budget 2018. (Image: PTI)

Budget 2018: Even as the date for Union Budget 2018 nears top market voices say that Finance Minister Arun Jaitley may consider LTCG on equities. “Maybe time has come to look at whether the one year period should be increased to two years. This means only after two years you would consider long term,” Uday Kotak, Executive Vice Chairman and MD of Kotak Mahindra Bank, told The Indian Express. Gains from equity holdings for short term (less than a year) are presently taxed at 15 per cent. The gains made from stock market transactions after one year are currently exempt.

“The market also hopes that the LTCG on equities is not re-introduced. Tax free LTCG has been a key driver for investments in equities. However, an increase in the time limit for LTCG from 1 year to 3 years looks possible to foster a longer term approach to equities,” Angel Broking said.

Also read: Budget 2018: Uday Kotak proposes raising holding period for capital gains tax exemption on equities

The firm notes that India is one of the most heavily taxed countries in the world. “The government had promised a progressive cut in tax rates from 30% to 25% but also a simultaneous removal of exemptions. That will make the announcement neutral. The expectation is a cut in corporate tax rates and phasing out exemptions in a time-bound manner. After all, even the US is aggressively pursuing corporate tax cuts. Indian corporate tax rates are already among the highest in the world,” Angel Broking said.

Watch Video: Budget 2018: FM Arun Jaitley May Tweak Income Tax Basic Exemption Limit

While many market experts say that the tweak may lead to a correction, ace investor Porinju Veliyath says that there’s no rationale to believe that imposition of long-term capital gains will lead to a stock market correction. “I strongly believe the course of Indian equity investing in the markets will not change at all. If some change, says 10% tax is imposed on long-term capital gains, nobody will stop buying equity for that matter and nor will there be any crash in the market. There may be some effect for next 48 or 72 hours and volatility, but otherwise the market will not change its course of direction,” Porinju Veliyath told ET Now.

The decks for roll out of LTCG tax currently 0% 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.

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