Long term capital gains to be taxed at 10%

Finance minister Arun Jaitley on Thursday proposed to tax long-term capital gains (LTCG) on equities exceeding Rs1 lakh at 10 per cent. However, capital gains made on shares until 31 January 2018 will be "grandfathered".

The total amount of exempted capital gains from listed shares and units is around Rs3,67,000 crore (as per returns filed for A.Y. 2017-18).

Jaitley said that a major part of this gain has accrued to corporates and limited liability partnerships (LLPs). This has also created a bias against manufacturing, leading to more business surpluses being invested in financial assets. 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.

He said he has however only proposed a modest change in the present regime, recognising that a vibrant equity market is essential for economic growth.

Jaitley has proposed to tax Long Term Capital Gains exceeding Rs1 lakh at the rate of 10 per cent without allowing any indexation benefit.

The finance minister has also proposed to introduce a tax on distributed income by equity oriented mutual funds at the rate of 10 per cent, to provide a level field across growth oriented funds and dividend distributing funds.

Long-term capital gains were made tax exempt in 2004. The move to exempt capital gains tax on stock trading was aimed at aligning rules with major investment source destinations such as Mauritius.

In an interview with ET Now, Revenue Secretary Hasmukh Adhia said that the gain from LTCG tax in first year would be around Rs20,000 crore.

Under current norms, any capital gains from shares held for more than a year are fully tax-exempt if securities transaction tax of 0.1 per cent is paid at the time of selling them.

Adhia said the total STT collection is very small at Rs 9,000 crore. He added that at present LTCG tax rate too nominal for anyone to be disappointed.

"I don't think making new investments is tough in the current tax rates," he said.