Tax Effect: Will LTCG play the party-pooper?

It is Budget time and all eyes are on finance minister Arun Jaitley, who is expected to do a major rejig on the tax front. Topping the charts is a big relief for the salaried middle class either by way of the reintroduction of standard deduction, or through a recast of the income-tax slabs.

From the market’s point of view, the one thing investors are worried about is a possible comeback of the longterm capital gains (LTCG) tax. Considering the sustained bull run on Dalal Street, many believe that this is the right time to tap into equity investors, who have made a killing from the sustained market rally.

Experts, however, say LTCG cannot co-exist with the securities transaction tax, which was reintroduced by former FM P Chidambaram over a decade ago. As far as India Inc is concerned, the big-ticket item on the agenda is a cut in corporate tax. The big question now is will the FM stick to the glide path to bring corporate tax to 25 per cent, considering the poor fiscal mathRs Also, can Jaitley afford to take the fizz out of the market, just for a few bucks moreRs


After all, a bull market forms the core of the government’s big-bang divestment plans. On ET NOW’s India Development Debate, experts discussed the likely tax tweaks in Budget 2018 and their impact on the market and the common man. Here are some interesting insights:

DINESH KANABAR
(CEO, DHRUVA TAX ADVISORS)

All eyes will be on how the FM is treating fiscal prudence. Bullishness is very much unwarranted. There is a great need for stability and consistency. You keep on varying the holding period. One cannot predict the behaviour of the stock market. The idea was to simplify the corporate tax. Bulk of corporate India is under the old regime.

BOBBY PARIKH
(FOUNDER, BOBBY PARIKH ASSOCIATES)

We need consistency and predictability. I don’t know the math as to what LTCG tax accrue to the government. Long-term capital losses have no tax-offset. If you tax the gain, corresponding offsets should be there. I don’t know if this needs sophisticated modeling before a decision is taken. Tax gains from capital gains from tax treaty countries were fixed. We have had 15-16 changes. What incremental revenue do you accrueRs

NILESH SHAH
(MD, KOTAK AMC)

Long-term gains are exempt because investors pay the STT. There are certain loopholes to plug before tinkering with the LTCG structure. If you want to tax LTCG, then you must remove STT. No other part in the world is bonus share treated at zero value. Bonus-tripping costs government Rs 30,000-40,000 crore a year. We must try to retain economic ownership with Indians.

V ANANTHA NAGESWARAN
(VANSIGHT CONSULTING)

Why should the stock market gains be treated differently? There is a case to determine what capital market gains should be. There is a case for taxing at book value, rather than the market value. There is no case for standby exemptions. You need to show that investors are coming to the stock market for tax gains, but it is HNIs who have invested in the market. Keep corporate tax rates reasonable, widen the tax base.