Centre may not earn much changing capital gain tax regime

The central government may not earn much by changing the capital gains tax rates on equities and investment in equities cannot be equated with investments in real estate and others, said experts.

Participating in a panel discussion on BTVi, Citi India Managing Director and Chief Economist Samiran Chakraborty, from fiscal perspective, the whole gain on changes in long term capital gains tax will be only Rs.5,000 crore to Rs.10,000 crore.

Reliance Capital`s Chief Investment Strategist Madhusudan Kela, said the argument that long term capital gains tax should be applicable on equities at par with other investments like real estate, gold is not logical.

He said equity has a different risk connotation and investing in equity is not like investing in fixed income as investors take incremental risks.

According to Kela, the market may adjust and absorb if the government extends the long term capital gains tax applicability from one to two years.

Morgan Stanley India Managing Director and Head-India Research Ridham Desai said the discussions on the tax on equities before the budget is good as the market gets priced in appropriately.

He said one more issue that has to be seen in the budget to be presented on February 1 by Union Finance Minister Arun Jaitley is the securities transaction tax (STT).

He said Prime Minister Narendra Modi`s comment on the increase in derivatives turnover which is not actually an investment but speculation.

According to Desai the market is not heading into the budget with the worst priced in.

He said the market is probably priced in for extending the duration of investment without touching the long term capital gains tax rates and also some increase in short term capital gains tax.

According to Desai, the government can disincentivise individual equity investor as against those invest through mutual fund as the former is sort of speculative in nature.