Budget 2018: Govt may scrap STT, reintroduce long-term capital gains tax
New Delhi: The government is looking to introduce long-term capital gains tax (LTCG) on listed shares with certain riders and may withdraw securities transaction tax (STT), which was introduced 14 years ago, the Times of Indiareported citing sources.
Currently, gains from shares if held for more than 12 months are exempt from long-term capital gains tax while trades on stock exchanges face STT irrespective of the duration of the holding. If finance minister Arun Jaitley opts to reintroduce long-term capital gains tax, the government will be able to levy tax on shares that are held for more than 12 months too.
The TOI report citing sources said that the view in the government is that the tax (LTCG), along with the withdrawal of securities transaction tax (STT) was prudent after the Narendra Modi administration managed to successfully renegotiate tax treaties with Mauritius and Singapore, which allowed investors to get away without paying taxes anywhere.
Meanwhile, there are also demands to increase the holding period for stocks to two-to-three years as consultants argue that one year is hardly long-term. In case of property, the period was reduced from three years to two years in the previous Budget.
However, market players are not happy with the proposal as they believe that the government will tax them when valuations are high. This will also impact stock markets, fundraising as well as disinvestment plans of the government.
“There are arguments for and against it, but on balance, I am not sure whether there are good reasons to change the regime at this point of time. There is an element of stability, predictably and continuity. For years, STT has been justified on the grounds of simplicity and ease, and that one pays irrespective of whether you buy or sell or whether there are gains or losses,” the TOI quoted Pranav Sayta, partner at consulting firm EY as saying.
The argument, however, does not find favour with a powerful section at the Centre, which believes that the setback will be temporary, the TOI report said.
There is also a view that the government may introduce LTCG on new transactions only and above a certain value. The levy could be around 10 per cent. The government will also need to take a call on whether the scope of the tax will include mutual funds, which have become a crucial investment tool for the middle class and has emerged as a strong counter to FIIs, the report said.
“The expectation is that the time limit for long term capital gains may kick in after 24 months. Resultantly, many investors divesting within 24 months shall have short term capital gains (STCG) and shall be liable for tax at 15 per cent in addition to STT. If STT rates are changed moderately, then the overall tax collection may be reasonably good. The other option is to drop STT completely. Then, long-term capital gains and STCG collection may give additional contribution to government treasury,” TOI quoted Hemal Mehta, partner at consulting firm Deloitte Haskins & Sells as saying.
Source by:- timesnownews