Go long, go short, go pay more tax

Investors must now shell out more taxes on gains from listed stocks and equity mutual funds. The government in the budget on Tuesday proposed raising the capital gains tax on profits made from listed equities — both for the short term and the long term.

Capital gains are profits or gains arising from the sale of stocks, equity-oriented products, and real estate. The tax differs for various products depending on the time frame and period. The tax on long-term capital gains (LTCG) — profits on equities held for more than a year — was raised from 10% to 12.5%. Tax on short-term capital gains (STCG) — profits booked within a year — rose from 15% to 20%.

The government, however, reduced the LTCG tax rate on unlisted shares from 20% to 12.5%. The LTCG exemption limit on equitieshas increased from ₹1 lakh to ₹1.25 lakh. The changes will be effective July 23.


“Short-term investors may see some impact due to the 5% increase in taxes as they will now have to adjust their trading models accordingly,” said Roop Bhootra, CEO investment services, Anand Rathi Shares and Stock Brokers.
The government re-introduced LTCG tax on stocks in the budget in 2018 after it was scrapped in 2004-05. Until then, the LTCG tax on equities was tax-exempt.

Some market participants said they expected the government to raise the equities capital gains tax— at least the short-term — in the wake of the heightened stock market activity in recent times.

"The slight increase in long-term capital gains tax has a limited impact on sentiment, while the higher short-term tax will deter rampant selling and profit booking in the short term,” said Dhiraj Relli, CEO of HDFC Securities.
According to Vikas Khemani, founder of Carnelian Asset Management, the increase in capital gains tax could have been avoided, but is not expected to significantly impact market sentiment.