Most market participants said the introduction of the long-term capital tax gains tax was as expected. However, they welcomed the grandfathering provision, and felt it would act as a soothing factor.
Partho Dasgupta, Partner Tax and Regulatory services, BDO India , said: The grandfathering provision of taxing long-term capital gains tax with January 31, 2018 being a cut-off date would come as a relief with the market prices touching all-time high for exempting actual gains accruing to investors in the future.
Accoriing to G Pradeepkumar, Chief Executive Officer, Union Asset Management Company , the decision to levy LTCG on equity at the rate of 10 per cent is not surprising and is unlikely to have any significant adverse impact on the markets.
"This still keeps equities as the most attractive asset class from a taxation perspective since the holding period to be eligible for LTCG on most other asset classes is three years. The fact that that gains made up to January 31, 2018 will be grandfathered indicates that the government has thought through the proposal quite clearly."
Kamlesh Rao, MD & CEO at Kotak Securities , said: Rationalisation of LTCG as expected has arrived, though negative on sentiments but robust equity returns will absorb this 10 per cent if corporate earnings growth happen as expected.
"In the longer term, I think taxing capital gains is healthy for the overall economy. Needless to say, there will be a knee-jerk reaction to this in the market, but my guess is that this would be short-term in nature," said Nithin Kamath, Founder & CEO, Zerodha.
Jayant Manglik, President- Religare Broking, opined that: Other than a kneejerk reaction, equity market will not be impacted in the medium and the long term as it is still the only real investment opportunity available.
"FII investments may be affected in the short run as the issue of tax compliance come up which increases operational cost. Likewise mutual funds may see a brief impact but the grandfathering till 31st January helps. The real disappointment was the continuation of STT along with LTCG, logically only one should be there.”But not all are convinced.
Milind Kothari, Managing Partner, BDO India, said: "The much anticipated introduction of LTCG is now back with a new avatar. As we know in tax legislation, this could only get worse over a period of time with every successive budget diluting the original commitment of taxing long term gains.''
Monish Panda, Founder, Monish Panda & Associates, said: This move was expected. Introduction of LTCG will lead to the Sensex falling at least in short term. Most investors will attempt to book their profits made during the recent bull run and escape imposition of LTCG to be imposed post January 31, 2018.