Budget 2020-21: The government may announce some relief on the long-term capital gains in the upcoming budget presented on February 1, according to some analysts/economists polled by Financial Express Online. The government had earlier introduced capital gain tax at the rate of 10 per cent on the sale of long term (held for more than one year) listed equity shares and equity-oriented mutual funds if the gains exceeded Rs 100,000. These long-term capital gains (LTCG) were earlier exempt from tax. “In line with its objective of making India an attractive investment destination, the government should re-consider the LTCG tax on listed equities,” said Vikas Vasal, National Leader-Tax at Grant Thornton India.
He further said that the government may consider increasing the minimum holding period requirement for qualifying as a long-term capital asset from the current one to three years to ensure that funds remain in the system for a relatively long time. Stating the need for relaxing long-term capital gains, Ranen Banerjee, Leader Economic Advisory Services at PwC said, “The LTCG does not generate much revenue for the government and depresses sentiment. Thus, there should be some relaxation on the same.”
Meanwhile, the industry experts believe that some relaxation is needed in dividend distribution tax (DDT) too as the rate is too high. Per the current tax regime, an Indian company is required to pay dividend distribution tax (DDT) of 21.17% on declaration/payment of dividends. This DDT is an additional income-tax collected from the company over and over the corporate income tax.
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An analyst at a leading bank feels to streamline the process, it would be prudent the tax is deducted only at the point of payment by the company which is by the DDT mechanism. “Government should abolish DDT,” said Vikas Vasal adding that it should instead introduce taxation of dividend in the hands of shareholders directly i.e. the classical system of taxation of dividends. According to him, this would not only remove double taxation for resident shareholders but also allow foreign shareholders to claim treaty benefit.