Budget 2018 impact: Short-term jitters over long-term tax

MUMBAI: Investors are expected to churn their portfolios more and the enthusiasm for equities may dip after the government reintroduced long-term capital gains (LTCG) tax after a 14-year gap. From April 1, investors will have to pay 10% tax on profits exceeding Rs 1 lakh made from sale of shares or equity mutual fund units held for over one year. LTCG is currently exempt on all equity gains.

The move may reduce incentive for investors to hold equities for longer term as the difference between tax on short and longterm capital gains is only 5%.

Stock indices ended slightly weak after swinging between gains and losses as the market digested the return of LTCG tax with trepidation. But for the grandfathering clause — which exempts investors from paying taxes on LTCG made till January 31 — and rumoured stock purchases by state-owned institutions, the market would have reacted adversely, said analysts. Tax experts said LTCG tax will not be applicable on trades done till March 31.