Rakesh Jhunjhunwala on LTCG tax on equities: Will not deter domestic flows, FII flows may be affected

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Updated: Feb 23, 2018 10:13 AM

Long-term capital gains tax: Ace investor Rakesh Jhunjhunwala says that the introduction of LTCG tax on equities in Union Budget 2018 for profits exceeding Rs 1 lakh will not deter domestic inflows into capital markets, while foreign flows may be impacted.

“I would be be paying a large part of that tax. Death and taxes are the only sure things in life,” Rakesh Jhunjhunwala quipped. (Image: Reuters)

After Finance Minister Arun Jaitley introduced long-term capital gains tax on equities in Union Budget 2018, inducing negative sentiment in the bull markets, ace investor Rakesh Jhunjhunwala says that the move will not deter domestic inflows into capital markets, while foreign flows may be impacted. “It’s not going to deter at least serious local money. It could deter foreign flows as lot of them are not used to paying taxes,” the big bull of Dalal Street Rakesh Jhunjhunwala said yesterday, speaking at the TiE conference.

Explaining as to why he doesn’t see too much impact on inflows, Rakesh Jhunjhunwala said that equities still offer competitive returns. “The alternative sources of investment all have a higher rate of tax. A person investing stocks is not at a disadvantage. Property tax is at 20% while even debt is fully taxed,” Rakesh Jhunjhunwala explained. In the same address the ace investor added that he would’ve liked it if long-term capital gains tax on equities. “I would be be paying a large part of that tax. Death and taxes are the only sure things in life,” Rakesh Jhunjhunwala quipped.

Interestingly, Rakesh Jhunjhunwala had earlier in February- 2017 said that LTCG on equities would not make sense in India, as STT is already present. “Rakesh Jhunjnhunwala had noted that contrary to the ‘myth’ of no tax in stock market, there is dividend tax at the marginal rate of 33% as well as the Securities Transaction Tax. “So either you abolish securities transaction tax or impose long-term capital gains,” the ace investor told ET Now back then.

Under the new rules, long term capital gains on equities exceeding Rs 1 lakh will be taxed at the rate of 10% without allowing the benefit of any indexation, Finance Minister Arun Jaitley had said on February 1. Notably, all gains up to 31st January, 2018 will be grandfathered. The tax laws will apply from 1st April 2018.

Saurabh Mukherjea of Ambit Capital says that the investors should continue to invest in equities, despite LTCG introduction. “Debt has its place in the portfolio but only a limited context. Given how high inflation is for middle class people in India, most of us need to keep most of our wealth in equities,” Saurabh Mukherjea told FE Online.

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