Budget 2021 Expectation: Exempt LTCG tax on equities to boost capital markets

Option was given to existing investors to redeem their investments till January 31, 2018 without paying any tax on LTCG.

Union Budget 2020-21 Expectations for LTCG Tax on Equities: The tax on Long Term Capital Gains (LTCG) on equities has been reintroduced in the Union Budget 2018 – after about 14 years of replacing it with the Securities Transaction Tax (STT) in 2004.

Accordingly, 10 per cent tax is payable on LTCG above the threshold limit of Rs 1 lakh on gains from redemption of equities and equity-oriented funds in a financial year with no indexation benefit.

Option was given to existing investors to redeem their investments till January 31, 2018 without paying any tax on LTCG.

Even if the existing investors continue to hold their investments, they are allowed to deduct higher of the actual investment value and the fair market value per share/unit as on January 31, 2018 as cost of investment from the redemption value to calculate the LTCG.

The reintroduction of LTCG tax had caused a massive dent in the investors’ confidence, resulting in post-budget market meltdown. The return on equities remained subdued for the entire 2019 and most part of 2020.

Subsequently, the Dividend Distribution Tax (DDT) has been removed and the dividend income has been made taxable, but Stamp Duty has been imposed on equity investments.

Budget 2021 Expectations: Taxpayers want the old income tax regime to continue

While removal of DDT has resulted in higher dividend payments, investors in higher tax brackets face higher tax burden after the dividend income becomes taxable.

With the LTCG taxation at 10 per cent imposing an additional tax burden because of other transaction taxes – like STT, Stamp Duty – in place, equity investors want some respite from the multiple tax burden.

“The government should exempt long-term capital gains on the sale of Indian-listed equity shares. Alternatively, it should grant the aforesaid tax exemption to investors who have held the securities for more than two years,” said Deloitte India in its pre-budget expectations on the Financial Services Sector.

“This measure will help the Indian capital markets grow exponentially and also encourage Indian resident investors to channelise their long-term savings into Indian listed equities,” Deloitte India added.

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