As the Union Budget 2018-19 is to be presented on 1 February 2018, there are many expectations from government. There are also expectations to get some relaxation in financial market. It is expected that the government is planning to make some changes in taxation rules of capital gains from shares. There will also be increase in the holding period for long term capital gains from shares to over two years from one year.
There was meeting of Prime Minister Narendra Modi with economists last week. As per the sources, it was expected that the government should increase tax incidence on gains in the equity market. There tax rate on gains in equity market are the lowest at present. This proposal to higher taxes was proposed in 2016 but not implemented.
Talking about the market players, they are demanding for abolishing Securities Transaction Tax (STT) and bringing in long term capital gains tax. In this matter, government will consider this aspect by contemplating all the factors.
The decision before the government was in choosing between increasing the holding period to qualify for tax-free status or bring in a nominal tax on LTCG.
What Prime Minister Modi said?
“Low or zero tax rate is given to certain types of financial income. I call upon you to think about the contribution of market participants to the exchequer. We should consider methods for increasing it in a fair, efficient and transparent way. Earlier, there was a feeling that some investors were getting an unfair deal by using certain tax treaties. As you know, those treaties have been amended by this government. Now it is time to re-think and come up with a good design which is simple and transparent, but also fair and progressive” as per one of the popular newspapers.
Taxation of Capital Gains
If there are short term capital gains (STCG) from sale of shares within a year then it is taxed at 15 per cent. In terms of long term capital gains (LTCG) from sale of shares after one year, it is tax free.