2023 budget forecast: Financial experts demand new roadmap for long-term capital gains taxes

Taxpayers are keen to know what changes the country’s Finance Minister Mrs. Nirmala Sitharaman will make in long-term capital gains taxes in the upcoming budget to be unveiled on February 1 this year. In 2018, the Ministry of Finance reintroduced taxes on long-term capital gains. Currently, long-term capital gains (LTCG) are taxed at a rate of 20 percent, plus any additional fees and tax. In some cases, such as listed securities, UTI units, or mutual funds, the LTCG is 10 percent plus an additional fee and tax. Short-term capital gains are taxed at 15 percent plus surcharge and tax.

Different people have different opinions on imposing an LTCG tax, which means that retail investors and tax officials think differently than institutional investors. We asked some of the most prominent names in the personal finance industry to conclude what they think is wrong with the current LTCG tax laws and what changes they hope to see in upcoming budget discussions and disclosures.

CA Rohit J. Gyanchandani, Managing Director, Nandi Nevesh Private Limited He said, “Given the growing culture of equity investment by retail investors, increasing the long-term capital gains exemption limit from the current limit of Rs. 1,00,000 per annum to a higher amount could be a good step to sustain the long-term investment culture growth Also, apart from the LTCG, the maximum Rs. 1,50,000 deductible under Section 80C should be revised and should be increased as income levels of individuals have increased significantly over the past two years.”

Rajani Tandal, Head of Product – Mutual Fund, He said: “Currently, stocks or mutual funds invested for more than a year earn 10 percent of the LTCG. This tax was abolished in 2005, but it was reinstated in the 2018 budget. Gains from the sale of immovable property and unlisted shares held for more than two years are subject to LTCG at a rate of 20 percent. The government should achieve uniformity among similar asset classes by rationalizing the LTCG tax structure and even considering inflation-adjusted capital gains.”

Deepali Sen, Co-Founder, Srujan Financial Services LLP He said, “The government should increase the amount of non-taxable earnings/gains and the exemption limit of Rs 1 lakh should be strengthened. It was introduced in the Finance Act 2018.”

Rahul Agarwal, Owner, The advent of finance He said: “Capital gains tax laws are vast, varied and very confusing for the common man. Tax rates, holding periods, availability of indexation vary by type of capital asset, tax residency status, etc. In my opinion, there is an urgent need to simplify this complex maze and simplify the rules. Some of the things that The must-haves for immediate implementation are as follows:

  • Create a uniform tax rate and a long-term holding period based on whether the asset is movable or immovable, i.e. for all movable assets such as equity shares (whether listed or unlisted) and mutual funds/ETF units (whether proprietary or non-equity) ), the period is 12 months and the tax rate is 10 percent.
  • Consolidate the period to 24 months and the tax rate to 20 percent for all immovable assets.
  • Raising the Exemption Limit R1 lakh to R2 lakh, as it has not been revised since its inception in 2018.”

Punit Shah, Partner Dhruva advisors He said, “The current rate of 10 per cent on LTCGs for non-residents, including FPIs, is very competitive and should motivate foreign investment institutions to invest in Indian stock markets. This rate of 10 per cent plus one year holding period for long-term qualification are reasonable standards and should not be modified.”

Sourav Srivastava, CFA, Individual investor He said, “The Securities Transaction Tax (STT) was introduced in the 2004 budget to replace the LTCG because there were some evasion issues that were noted with the LTCG at that point. But then the LTCG came back in 2019 while the STT also continued to be imposed. So, in fact “An additional tax has been imposed on stock market investments. The share market participation rate in India remains low in the single digits while it is present in high numbers in developed economies. Stock market participation will increase if the taxation system is favorable to investors.”

Dev Ashish A SEBI Registered Investment Advisor and founder (stable investor) said, “The government should rethink the capital gains tax on shares. Currently, long-term capital gains (or LTCG on gains over a one-year holding period) are taxed at 10 percent without indexation on gains above R1 lakh (read more here). It would be better if the government could consider eliminating the LTCG tax on equity investments if the investments were held for 24 months (or two years). This will also require a redefinition of termination of termination to 24 months from the current 12 months to decide whether termination is short-term or long-term.”

In general, there is an urgent need to completely rethink the capital gains tax for various assets. Too many buckets under the existing structure with too many confusing fittings. Ashish added that there is a need to streamline things and reduce the unnecessary burden of compliance on everyone.

Rohit Shah, Founder and CEO, GYR Financial Planners Private Limited He said, “In the past, the NDA system has made it clear why capital gains tax arbitrage should be allowed for long-term equity-based capital gains, a practice that has benefited the upper middle class and the wealthy. I hope the government will not interfere with something that is already working properly.”

Although there have been discussions about the possibility of lower tax rates and a greater possibility of an income tax cut in the 2023 federal budget, investors have pinned their hopes on the possibility of the government returning to pre-2018 rules or eroding its effect. Existing laws that have been enacted to tax the LTCG.

The different ways in which capital gains are taxed in the case of equity and debt funds.

First posted: Jan 22, 2023, 03:43 PM he

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