With just days for the Union Budget 2018, there are speculations doing the rounds that long-term capital gains (LTCG) tax on equity investments may be reintroduced.
Equities, preference shares or equity-linked mutual fund (MF) schemes for an investment of less than 12 months currently attracts short-term capital gain tax of 15 percent besides surcharge and cess, reported the Economic Times.
Meanwhile, gains on equity investment beyond 12 months are exempted from taxes if the securities transaction tax (STT) is paid on the sale transaction under section 10(38) of the I-T Act.
Market participants believe that to make up the tepid revenue collection from goods and services tax (GST) and for breaching the fiscal deficit target for the ongoing fiscal, the government may look for alternative ways to tax citizen.
However, they believe that if the government bring in long-term capital gains tax on equity investments, it would be negative for the investors.
Finance Minister Arun Jaitley is scheduled to table the Union Budget for financial year 2018-19 on February 1.
"My fear is that the government may play around with the exemption on capital gains on equity beyond one year. If it does so, it will really dent the momentum that we see in the equity market," Sanjay Sinha, Founder of Citrus Advisors, told ETNow.
2017 had been a phenomenal year for the Indian capital market as benchmark Nifty 50 climbed around 2,500 points or 31.2 percent since the start of the year, which is the highest in three years. Shares of 33 of the 50 Nifty companies beat analyst forecasts made at the start of the year, the highest since 2014.
And most market analysts still hope that 2018 too will witness a bull run while some are sceptic about market's future amid uncertainties in India's micro-economic conditions.
However, market veteran and BSE member, Ramesh Damani believes the government would not tweak LTCG, but there are apprehensions in the market that the government would reintroduce the tax.
"Why was LTCG introduced? It came in to incentivise young investors to come into the equity market. Now that has happened. We are seeing this huge liquidity coming into the domestic markets because of that. Why do you want to take that away when the policy is working? So I am going to believe that North Block will not fiddle with the long-term capital gains tax," Damani told the business news channel.