Tax on Capital Gains May Continue This Year, Rise from 10 Percent Unlikely

New Delhi: The 10 per cent long-term capital gains (LTCG) tax imposed on profit above Rs 1 lakh in the last Budget will, in all probability, continue in this year's Budget, sources said.

The sources said that there were neither chances of a hike above 10 per cent nor of an increase in exemption limit above Rs 1 lakh.

The long-term capital gains tax was imposed on shares being held for more than one year. Investors in equity-oriented mutual funds were also included in the LTCG tax net.

However, all gains up to January 31, 2018 were grandfathered by government. This tax was re-introduced after a gap of 14 years.

Any reduction in the LTCG or removal or a hike in its exmeption limit from Rs 1 lakh could boost capital markets, which have turned dry since January 2018 amid multiple domestic and global issues -- that's the thinking in the D-Street.

The industry hopes Sitharaman would remove the LTCG tax completely, or cut the rate.

Market participants are now worried over the possibility of a hike in the long term capital gains (LTCG) tax to increase revenue of the government. Some of them had also in their pre-Budget meeting told FM to withdraw it as they already pay securities transaction tax.

Any increase in LTCG tax is expected to reduce gains in the benchmark indices Sensex and Nifty this year.

After the announcement in last Budget, the government had said that currently the amount of income earned from the stock markets that is exempt from this tax works out to Rs 3.76 lakh crore which would translate into a tax collection to the tune of Rs 37,000 crore.

Finance Minister Arun Jaitley had re-introduced LTCG tax on equity in his last budget. Mutual fund players say government should roll back LTCG tax as the tax collection was not "significant".

So far the amount collected from such a tax has not been given by the government. "In view of grandfathering, this change in capital gain tax will bring marginal revenue gain of about Rs 20,000 crore in the first year. The revenues in subsequent years may be more," former Finance Minister Arun Jaitley had said.

In the 2018 Budget, government had imposed 10 per cent levy on capital gains of over Rs 1 lakh without the benefit of indexing, making it co-exist with the securities transaction tax or STT. The then Finance Secretary Hasmukh Adhia had said the total STT collection is very small at Rs 9,000 crore.