The government is expected to twist some rules relating to taxation of capital gains from shares and increase the holding period for long-term capital gains. As the government is seeking to strengthen its revenues from financial markets so it will increase the holding period long-term capital gains from shares to over two years from one year at present. It is expected that in the Union Budget 2018-19, the government will take a crucial move to bring the holding period for shares in line with the similar holding period that already exists for unlisted shares and transactions in real estate. It will be tabled in Parliament on February 1.
Various economists held a meeting with Prime Minister Narendra Modi and they were of the view that the government should increase tax incidence on gains in the equity market. It is informed that currently, the equity market enjoys the lowest tax rate. It was brought to notice that the short-term capital gains (STCG) from the sale of shares within a year are currently taxed at 15 percent. However, the long-term capital gains (LTCG) from the sale of shares after one year are tax-free. Surprisingly, the Indian market is in the race to a fresh record high almost on daily basis in the run-up to the ‘Budget 2018’ that will be presented by the Modi Government.
It is not just that investors and analysts community will be watching budget but it will also be watched by every common man. In the last two Budgets of the current government, it was observed that government was pushing the rural or the India story. You can expect a similar trend in the upcoming Budget as well. When you will notice the last 2 year’s budget, you will find that the Union Budgets had been instrumental in giving a big boost to the equity markets. The budget indices are up by over 50% in less than 2 years.
Soon the Indian government will be tightening rules relating to LTCG.
How will LTCG affect the investors?
It is said that long-term capital gains tax will depend on risk capital requirement and capital formation in the economy. For India, where capital formation is important for the growth of the economy, the benefit of LTCG will continue. However, for developed economies, long-term capital gains tax should not be exempted. Retail investors, who are now entering equity markets, will be benefitted by this decision.