In the long term…we are all taxed
ET Online|
Feb 01, 2018, 06.49 PM IST
By Pravin Palande
What the FM said: Proposed to levy long-term capital gains (LTCG) tax of 10% on gains exceeding Rs 100,000 from sale of equity shares and the introduction of a 10% dividend distribution tax (DDT).
What it means: There have been estimates that because long term capital gains are tax-free, the government is losing out on income worth Rs 500 billion. The proposal should ideally have foxed the equity market. Both these moves have a serious ramification: slowing down flows into the equity markets and thus affecting the growth of the market.
However, the BSE Sensex remained flat (35,917.18). Most investors and fund managers felt that a 10% tax doesn't really dent the overall bullish sentiments of the Indian market. Investors felt that there will be a short-term problem in terms of flows, but there will be no impact on investment decisions.
A small tax may not worry the investor, but the fact also remains that India is now one of the few countries in the world which has a short-term tax of 15%, a long-term tax of 10% as well as a securities transaction tax. This is not an ideal situation for any progressive stock market. The least that the government could have done was to remove the STT, which is a turnover tax that was introduced in 2004 to tackle tax evasion and tax investors at source.
The fine print: Was this the best way to garner revenues from the booming stock markets? "In our opinion if the LTCG tax had to be tweaked, increasing the holding period from 1 year to 3 years for LTCG would have been a better option. Equities clearly are not a 1-year investment option, and increasing the holding period for LTCG eligibility would have improved holding discipline among investors," says Kaustubh Belapurkar, Director, Fund Research, Morningstar India.
A key issue pertains to how India would deal with countries like Mauritius with whom it has a tax treaty. However, we could not immediately get clarity on whether foreign investors will fall within the ambit of the new LTCG tax.
What the FM said: Proposed to levy long-term capital gains (LTCG) tax of 10% on gains exceeding Rs 100,000 from sale of equity shares and the introduction of a 10% dividend distribution tax (DDT).
What it means: There have been estimates that because long term capital gains are tax-free, the government is losing out on income worth Rs 500 billion. The proposal should ideally have foxed the equity market. Both these moves have a serious ramification: slowing down flows into the equity markets and thus affecting the growth of the market.
However, the BSE Sensex remained flat (35,917.18). Most investors and fund managers felt that a 10% tax doesn't really dent the overall bullish sentiments of the Indian market. Investors felt that there will be a short-term problem in terms of flows, but there will be no impact on investment decisions.
A small tax may not worry the investor, but the fact also remains that India is now one of the few countries in the world which has a short-term tax of 15%, a long-term tax of 10% as well as a securities transaction tax. This is not an ideal situation for any progressive stock market. The least that the government could have done was to remove the STT, which is a turnover tax that was introduced in 2004 to tackle tax evasion and tax investors at source.
The fine print: Was this the best way to garner revenues from the booming stock markets? "In our opinion if the LTCG tax had to be tweaked, increasing the holding period from 1 year to 3 years for LTCG would have been a better option. Equities clearly are not a 1-year investment option, and increasing the holding period for LTCG eligibility would have improved holding discipline among investors," says Kaustubh Belapurkar, Director, Fund Research, Morningstar India.
A key issue pertains to how India would deal with countries like Mauritius with whom it has a tax treaty. However, we could not immediately get clarity on whether foreign investors will fall within the ambit of the new LTCG tax.
