Published: Sat, February 03, 2018
Money | By Armando Alvarado

Jaitley delivers punch to markets' bull-run with LTCG tax

Jaitley delivers punch to markets' bull-run with LTCG tax

Jaitley tried to justify reintroduction of long term capital gains tax by saying the return on investment in equity is already "quite attractive even without tax exemption" and therefore there is a strong case for bringing long term capital gains from equities in the tax net. The expectation of the common man was that the government may reduce the tax bracket much to the relief of the common man but were left disappointed, remembering Jaitley making statements to the press that the tax bracket should be increased to 5 lakh.

Any profit or gain made after holding shares for more than one year is known an long term capital gain.

Finance Minister Arun Jaitley has proposed to tax long term capitals gains of over Rs 1 lakh at 10% without indexation benefit in his budget 2018. All transactions on our exchange will now be exempt from capital gains in derivatives for all non-residents. However, any gains incurred hereon will be taxed at 10 per cent.

The markets ended marginally down, but had substantially recovered from their intra-day lows, after the LTCG tax announcement. In view of grandfathering, this change in capital gain tax will bring marginal revenue gain of about Rs 20,000 crorein the first year, Jaitley estimates.

Will sale of shares between February 1 and March 31, 2018 be subject to LTCG?

If you sell those after April 1, 2018, at a loss, the cost of acquisition for such shares would be the price on the actual date of acquisition and not the notional cost on January 31, 2018.

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You bought a stock on June 1, 2015 at Rs 500, and the stock quoted Rs 700 on January 31, 2018. X sells the shares on July 1, 2018 for Rs 2,000 apiece. Your capital gains would be Rs 200, not Rs 400.

Suppose X buys 1,000 shares of Reliance Industries at Rs 500 on January 1, 2016.

Echoing the view, Reliance Securities chief executive B Gopkumar said levying the tax without tinkering with STT "makes India a probably the only nation to have both taxes at the same time".

The Centre said the introduction of LTCG was necessary to curb misuse. However, LTCG implementation is at least well thought out; no disruptive impact. However, taking investment decision with this in mind would prove counterproductive. "It is not a big negative and markets should eventually digest it", said Aashish Somaiyaa, MD & CEO, Motilal Oswal AMC.

The Centre, however, has managed to soften the blow by grandfathering the existing investments.

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