Decoding LTCG tax

The reinstatement of the long-term capital gains (LTCGs) tax on listed securities has been creating a market buzz for quite some time now, especially after Prime Minister Narendra Modi publicly stated that “those who profit from financial markets must make a fair contribution to nation-building through taxes”.

Accordingly, it was speculated that there would be levy of tax on LTCGs in the 2017 Budget. However, provisions with respect to taxation of LTCGs were largely left untouched.

However, in the Finance Bill 2018, the finance minister has reintroduced the LTCGs tax with the intention to bring tax parity among investor groups and other taxpayers.

Existing provisions

As per the provisions of Section 10 (38) of the Income Tax Act, 1961 (the Act), capital gains arising on transfer of long-term capital asset (i.e. capital asset held for more than 12 months) being listed equity shares or unit of equity-oriented fund or unit of a business trust is tax-exempt, provided Securities Transaction Tax (STT) has been paid on such transfer.

The aforesaid exemption was introduced in 2005 to attract investments and the revenue loss for the same was made up by imposition of STT.

It was also said that since the ultimate source …read more