With Budget 2019 around the corner, removal for LTCG on equity investment gains momentum

With budget 2019 at the helm, the demand for removal of Long Term Capital Gain (LTCG) tax on equity investment has once again gained momentum. The stock market insiders are of the opinion that by levying LTCG on securities, the government of India has duped triple taxation system on them as they are already paying STT (Security Transaction Tax) and dividend. They are of the opinion that it is hitting the investment sentiment of the small investors as it is no more an avenue for revenue which gives reward for the risk an investor gets from the stock market investment.

Speaking on the reason for removal of LTCG tax on equity investment Raghavendra Pratap Singh, Co-Founder at i2iFunding said, “LTCG tax was introduced in the Budget 2018. Equity investors will now have to pay a tax of 10 per cent on the realized gains of over Rs 1 lakh from all equity investments in a financial year. This will also be applicable to ELSS plans, which are quite popular among the investors for tax saving purposes. There was considerable confusion among the retail investors last year where many small investors held on their investment decisions."

Elaborating upon the reason that makes LTCG null and voids Kartik Jhaveri, Director — Wealth Management at Transcent Consultants said, "Equity investors are already paying a hefty STT and in case of a large portfolio, they are also paying dividend tax. So, there was no reason for the government to levy LTCG on equity gains. It is making a tripple taxation system into the markets, which is discouraging the small and retail investors into the share market."

Standing in sync with Kartik Jhaveri Raghavendra Pratap Singh of i2iFunding said that with the new finance minister at the helm, there has been rising demand to abolish this tax as it dampens retail participation in equity investment which is already low in India when compared to developed economies and China. "Increased retail participation will reduce volatility which was witnessed earlier when FIIs pulled out of the market. It was the retail investors who kept the market buoyant. The removal of LTCG will help in channelizing more funds towards the development of the country. Experts believe that the revenue from the LTCG may not be substantial, hence gains of abolishing this tax outweighs the revenue loss," said Raghavendra Pratap Singh adding, "However, the government may not be in the mood to so. Modi 2.0 government needs substantial corpus to increase government spending to jump-start the economy and provide impetus to welfare schemes such as universal healthcare etc. With limited fiscal manoeuvrability, the government will look towards every source of income, hence getting any relief  from LTCG seems distant for now.”