The finance ministry is likely to extend the holding period for short-term capital gains (STCG) tax on listed securities to three years, which currently stands at one year, in the upcoming Budget for 2018-19, Business Standard reported today.
The move is aimed at bringing the tax on equities on par with some other asset classes, the report said.
Currently, equities, preference shares or equity-linked mutual fund (MF) schemes for an investment of less than 12 months attract short-term capital gain tax of 15 percent besides surcharge and cess.
With about two weeks remaining for the Union Budget 2018, there are speculations doing the rounds that long-term capital gains (LTCG) tax on equity investments may also be reintroduced.
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 offset 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 the citizen.
The government has also received representations to withdraw the securities transaction tax (STT) and to provide clarity on the goods and services tax (GST) on alternative investment funds, it said.
However, market veteran and BSE member, Ramesh Damani believes the government would not tweak LTCG or STCG, 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 ET Now.