In Budget 2018, 10% Tax Announced On Long-Term Capital Gains From Stocks, Equity Mutual Funds

Finance Minister Arun Jaitley in Budget 2018 announced a new tax of 10 per cent on long-term gains from investing in stock markets and equity mutual funds. Under the proposed new tax, profits of more than Rs 1 lakh from stock and equity mutual fund investments held over one year will be taxed at 10 per cent. At present, profits from stock and equity mutual fund investments held for more than 12 months are tax exempt.

The existing short-term capital gains tax, applicable on profits made on investments below one year, remains the same at 15 per cent.

The Sensex plunged nearly 300 points after the finance minister announced the new long-term capital gains tax was announced. But the stock markets recovered later. (Read more)

However, long-terms capital gains made on investments up to January 31, 2018, will not be taxed. The finance minister also introduced a 10 per cent tax on distributed income by equity-oriented mutual funds at the rate of 10 per cent.

The proposed change in capital gains tax will bring revenue gain of about Rs. 20,000 crore in the first year.

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The total amount of exempted capital gains from listed shares and mutual fund units is around Rs. 3,67,000 crore (as per returns filed for A.Y. 2017-18), the finance minister said. A major part of this gain has accrued to corporates and Limited Liability Partnerships (LLPs), he noted. "This has also created a bias against manufacturing, leading to more business surpluses being invested in financial assets," he said.

"Due to attractiveness on return on investment on equity, even without tax exemption, there is a strong case for bringing Long Term Capital Gains from listed equities in the tax net", the finance minister said.