All eyes and ears were on the Finance Minister Arun Jaitley anouncing the Union Budget 2018. The expectation of the common man was that the government may reduce the tax bracket much to the relief of the common man but were left disappointed, remembering Jaitley making statements to the press that the tax bracket should be increased to 5 lakh.
The other change that most of the people expected was return of ‘long term capital gains’. The long term capital gains made its entry back after a cap of 14 years. Arun Jaitley said that long-term capital gains of over Rs 1 lakh will be taxed at 10 percent without the benefit of indexation. The capital gains made before Jan. 31, 2018 will be exempt.
Essentially what it means is if you sell equity or equity mutual fund and are going to make more than over a lakh rupees as income or profit then you will be taxed 10% on the profit you make. Jaitley tried to justify reintroduction of long term capital gains tax by saying the return on investment in equity is already “quite attractive even without tax exemption” and therefore there is a strong case for bringing long term capital gains from equities in the tax net.
He further said with reforms undertaken by the government, the equity markets have become buoyant and the total amount of exempted capital gains from listed shares and units worked out to be Rs 3.67 lakh crore as per the returns filed for Assessment Year 2017-18.
“Major part of the gain has accrued to corporates and LLPs creating a bias against manufacturing, leading to more business surpluses being invested in financial assets,” he said.
However, it is widely understood that the long term capital gains cannot co-exist with the security transaction tax. security transaction tax is applicable on shares, bonds, debentures, derivatives, units issued by any collective investment scheme, equity based government rights or interests in securities and equity mutual funds. security transaction tax is levied both on domestic as well as foreign investors.