LTCG tax on equity mutual funds to go?

Finance ministry is working on a package to boost the confidence of capital market participants, said ET Now, quoting unnamed sources. The ministry may also take a relook at long term capital gains (LTCG) tax and dividends on shares, the TV channel said.

According to ET Now, the finance ministry is considering a proposal to make LTCG tax-free after three years. Currently, investments in equity mutual fund schemes held for more than a year qualify for LTCG tax of 10 per cent on gains of over Rs 1 lakh in a financial year.

LTCG tax was zero on equity schemes earlier, before the then finance minister Arun Jaitley levied a tax of 10 per cent in the Budget 2018. Jaitley also introduced the grandfathering clause which exempted gains made before January, 31, 2018 from tax.


“I propose to tax long term capital gains exceeding Rs 1 lakh at the rate of 10 per cent without allowing the benefit of any indexation. However, all gains up to 31st January, 2018 will be grandfathered,” the then finance minister said in his budget speech.

The LTCG tax became a vexed issue after the last budget when the finance minister Nirmala Sitharaman hiked the highest tax slab to 42 per cent on individuals earning above Rs 5 crore. Some Foreign Portfolio Investors, especially pension and sovereign funds that are registered as trusts, also fell into the highest tax bracket. This led to flight of FPI money from the Indian markets.

The news agency Reuters also reported that “India is likely to exempt foreign portfolio investors from an increase in taxes that was part of the budget approved by parliament but heavily criticised, a government official said on Thursday.”

“The official, who declined to be named, said the government will either issue a notification or an executive order, which could be later submitted to parliament for approval, to exempt the foreign portfolio investors, mainly registered as trusts, from the increase in surcharge on super rich taxpayers.”

After ET Now flashed the details of the likely finance ministry package for the capital markets, the stock market reacted positively. The market bellwether – S&P BSE Sensex – rose 500 points in 10 minutes.