Long Term Capital Gain
Yes you heard it right. Keep your eyes on Union Budget 2018 you may get to know this. As our Prime Minister Mr. Narendra Modiji has given a hint about it in his recent speech. Among several expectations investors believe that the government could look to address fiscal deficit situation.
How LTCG on equity shares computed?
If equity shares or mutual funds are held for more than 12 months it will be considered as long term capital asset and Long Term Capital Gain on sale of such equity shares is exempt under Income Tax Act under current situation. And if shares are sold before 12months it will be considered as short term capital gain and will be taxable at 15%.
Short term capital gains on shares is also a source of revenue for government and as government is facing deficit situation it will look for different avenues to generate revenue. It may be possible that government will scrap the difference between short term and long term capital gains.
What will be the Impact if it will introduced?
LTCG tax will be deterrent for equity investors. Since demonetization, investors have flocked to equity markets and mutual funds achieving greater inflows. The implication of the impost on LTCG may sound like death knell to investors sometimes and will have immediate adverse effect on markets. Investors could shy away from equity market and look for alternate investment modes.
Is this a good time to roll it out?
There could be negative impact of introduction of such tax but Even if there is need to introduce it, now it is not time to roll out. The situation in this industry is very bright now and the taxation move will act as ‘anti-investor’ measure.
At the end I would like to add “Without being judgmental about the outcome in the budget, investors should focus on what is most likely to happen rather than what should happen. One could also tax LTCG at different slabs”.