Whenever the Union Budget is presented, a familiar question returns to the stock market — will the Long Term Capital Gains (LTCG) tax be scrapped? From Dalal Street to long-term investors, the debate resurfaces every year. Many believe that taxing long-term equity gains goes against the objective of encouraging wider participation of ordinary investors in India’s capital market.
What is LTCG Tax?
Long Term Capital Gains refers to the profit made when an asset is sold after holding it for more than a specified period. For listed shares and equity mutual funds, holding for more than 12 months is considered long-term. Currently, if the profit exceeds ₹1 lakh per year, LTCG tax must be paid at a rate of 10 percent. No indexation benefit is available here.
This tax was reintroduced in the 2018 budget. Before that, long-term gains in the stock market were tax-free for a long time. The government argued that this would increase revenue and bring balance among different asset classes. However, according to a section of investors, long-term savings are being discouraged through this tax.
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Why do investors demand the abolition of LTCG?
According to investors, the LTCG tax reduces long-term returns. For those who stay in the stock market for retirement planning or wealth creation, this tax has a major impact on compounding. Due to the absence of indexation, tax has to be paid even on inflation-related gains.
Another major complaint about LTCG is double taxation. Companies first pay corporate tax. Then tax has to be paid on dividends. On top of that, tax is imposed on capital gains again. As a result, experts claim that the same income is being taxed repeatedly. This also makes India's investment environment less attractive, according to experts.
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Many say that due to the LTCG tax, investors don't want to sell profitable shares. Rebalancing gets delayed to save tax. This can reduce liquidity in the market and increase risk.
What do experts think?
Rajiv Gupta, Executive Vice President of Religare Broking, says India is gradually moving from a saver-dependent economy to an investor-dependent economy. According to him, additional tax on long-term investment is creating barriers. He says, "When tax is imposed even on inflation-related gains, enthusiasm for long-term investment wanes. To achieve the Viksit Bharat 2047 goal, policymakers need to rethink the LTCG structure."
{News Ei Samay does not provide investment advice anywhere. Investment and trading in the share market or any field involve risk. Proper study and expert advice are recommended beforehand. This news is published for educational and awareness purposes.}
