Markets

Tiered capital gains tax structure being considered for equity market investments

K RAM KUMAR K RAGHAVENDRA RAO Mumbai | Updated on January 27, 2018






To encourage long-term equity investments and also help the Centre shore up its coffers, the Finance Ministry may consider introducing a tiered capital gains tax structure for equity market investments, in the Budget.

While the short-term capital gains arising from sale of shares, where such holding is less than 1 year, is expected to continue to be taxed at 15 per cent, the capital gains arising from sale of shares held between 1-2 years and 2-3 years could be taxed at 10 per cent and 5 per cent, respectively, said sources versed with the proposals being considered by the Ministry.

Capital gains arising from sale of shares held for more than three years, however, could be exempt from tax.

Currently, capital gains arising from sale of shares held for more than a year are exempt from tax. Tejesh Chitlangi, Partner, IC Legal, said, “An increase in the holding period for availing the long-term capital gains classification could be a dampener for long- term investors.

“Diminishing rate of taxation for disposal between the first and third year may bring some solace, but will still discomfort the investors since they may not prefer holding stock for such long durations. Resultant higher tax costs may hence lead to lower volumes.”

Capital gains

If the tiered capital gains tax structure is introduced, it will push equity investors to hold their investments longer to take advantage of tax exemption. Profits or gains arising from transfer of a capital asset are called Capital Gains.

Gain arising on transfer of short-term capital asset is termed short-term capital gain and gain arising on transfer of long-term capital asset is termed long-term capital gain.

Setting off loss

Short-term losses from selling of shares can be set off against short- or long-term capital gains (up to 8 years). Long-term capital loss is deemed to a business loss and can be set off against other business income.

Income from intra-day trading is considered business income and is taxed akin to any other business activity. However, tax laws allow intra-losses to be set off only against any other intra-day gains (that is, speculative losses may be set off only against speculative profits).

Published on February 28, 2016

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor

You May Also Like