Published: Tue, February 06, 2018
Finance | By Loren Pratt

Govt likely to announce clarification today for Long Term Capital Gains tax

Govt likely to announce clarification today for Long Term Capital Gains tax

There is an unevenness in the taxes that the salaried class pays as compared to the business class and the government is working on a foolproof technological system to change it, Finance Secretary Hasmukh Adhia said on Monday.

The doemstic share market was mimicing weakness in global equity market and it can not be attributed to LTCG tax levy alone, said the Finance Secretary. India's market cap is down by Rs 5.25 lakh crore since January 31, with many investors staring at mark-to-market losses on their investments. Even the Hang Seng (Hong Kong) and NIKKEI (Japan) declined by 1.95 percent and 1.8 percent respectively.

Slippage in the fiscal and revenue deficit: The government revised its 2018-19 fiscal deficit projections to 3.3 percent of GDP and to 3.5 percent of GDP for the current fiscal. "The global markets are all associated", he said at an event organised by the Chamber of Commerce. The budget has also imposed a 10 per cent distribution tax on long-term capital gains from equity mutual funds which were a fast-growing segment.

But they warned that the move could impact long-term investments in the segment and said government should look at the possibility of people moving into ULIPs to avoid the tax. It is only the global scenario which is creating this. "We had to time our thing as per the Budget only, the other thing came at a wrong time", he added.

The tax is levied on investments made in unlisted firms at valuations considered higher than the fair market valuation. And the budget will have significant bearing on how equity market behaves this year. "All these options are available for you", he said.

So starting April 1, the government will start levying a 10% tax on LTCG made on shares held for more than a year, up from nil tax at present.

"So what happens is too much money is chasing the share and mutual fund".

"It is a potential risk also, particularly to the small investors".

"When all other factors of production such as wage employment, where after hard labour one gets salary, are also subject to full taxation, it is not a good idea to keep anyone class of investment completely exempt from taxation".

The government is betting big on the long term capital gains tax (LTCG) on equities for mobilising revenue as now the amount of income earned from the stock markets that is exempted from this tax works out to a whopping Rs 3.76 lakh crore which would translate into a tax collection to the tune of Rs 37,000 crore going ahead.

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