The government has begun discussions on bringing parity between long-term capital gains (LTCG) tax on debt, listed equities and unlisted equities, two people aware of the development said.
Currently, returns from listed stocks or shares are taxed at 10% if they are held at least for a year. On the other hand, similar returns from unlisted shares are taxed at 20% if the holding period is at least two years. The holding period to avail long-term tax rate could also see some changes, say the persons quoted above.
LTCG 2.0: Government looking to tweak tax on your returns from the stock market
The government has begun discussions on changes in long-term capital gains (LTCG) tax on debt, listed equities and unlisted equities. Currently, returns from listed stocks or shares are taxed at 10% if held at least for a year, and similar returns from unlisted shares are taxed at 20% if the holding period is at least two years. Sachin Dave from The Economic Times gives you the complete details. Watch
Industry trackers say at least in the near term, the government may not change any tax rates for listed equities. “There is definitely a need for some rationalisation of capital gains regime between listed and unlisted equities and debt instruments for Indian and foreign investors. However, if long-term or short-term capital gains tax rate for listed equities is increased, it may potentially impact attractiveness for retail investors as well as FPIs,” said Sameer Gupta, tax markets leader, EY India.
Experts say for many investors, parity between listed and unlisted equities not just on the tax rate but even on the period for determining long term is crucial.
“It’s important, especially at a time when the government is looking to hit the primary market with the LIC IPO; the government may not want to rock the apple cart by increasing LTCG for listed entities, rather it could lower the LTCG tax rate for unlisted entities for Indians,” said Girish Vanwari, founder of tax advisory firm Transaction Square. Senior tax officials are currently studying the feasibility and the impact it could have on the government revenues, and if a change must be brought in, how should it be unrolled, a person privy to the discussions said.
“The change could be announced next year, whatever that might be. By the end of this year, the government could invite suggestions and feedback,” he said.
The government could also look at the tax rate on debt. Currently, the long-term capital gains tax on debt or debt mutual funds is higher than the equity funds. LTCG tax on debt funds held for over 36 months is 20%. Similar capital gains tax rate for Indian as well as foreign investors and companies is also on the cards, say insiders.
For the transactions in unlisted shares, non-resident Indians are taxed at 10%. The govt could bring in parity on LTCG tax for NRIs and Indian investors.
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