Skip to main content

Budget may tweak tax norms for listed stocks

Budget may tweak tax norms for  listed stocks
Short-term capital gains tax on equities may be extended to three years
The finance ministry is considering extending the holding period for shortterm capital gains (STCG) tax on listed securities from one year to three years, bringing equities onapar with some other asset classes in tax treatment.
This is among a number of measures for the capital markets that may be announced in the Union Budget for 201819.The STCG tax on stocks and mutual funds is 15 per cent at present.Listed securities held above a year do not attract any tax. The longterm capital gains (LTCG) tax on this asset class was removed in 2005, making India one of the most liberal stock market regimes.
The STCG tax on other asset classes such as bonds, gold, and real estate is applied when the holding period is less than three years.There have been demands from a section of stakeholders that the LTCG tax on equities be reimposed.
Budgetmakers, however, are of the view such a move may spook institutional investors and extending the tenure of the STCG tax could be a better option.There have also been representations to the government to do away with the securities transaction tax (STT) and to provide clarity on the goods and service tax (GST) on alternative investment funds and passthrough status for certain categories of such funds.
In preBudget meetings with Finance Minister Arun Jaitley and in offrecord meetings with the ministry, companies, consultancy firms, and market participants have given positive feedback on extending the holding period for STCG tax.

Expected Measures
Finance Minister Arun Jaitley could extension of shortterm capital gains on stocks to three years
BSE says that revenue loss from capital gains (LTCG) exemption leads revenue loss of Rs 500 billion
At present, STCG on equities and mutual funds is 15%. LTCG after 1 |STCG on gold, real estate, and debt mutual funds is applied if the holding tenure is less than 3 years.
The gains are added to investor´s income and taxed, according to income tax slab
LTCG on gold, real estate, and debt mutual funds is 20.6% (with inflation indexation benefit)
The BSE had earlier told the ministry revenue forgone on the LTCG tax exemption on listed securities could be Rs 500 billion per annum.
“Instead of reimposing the LTCG tax, the government is considering extending the STCG tax for listed securities held till three years, up from one year currently.That will bring equities onapar with other asset classes,” said a source familiar with the developments.
If the move is decided upon, Jaitley may make this announcement in the Budget.“The government seems to be keen on doing away with exemptions and bringing down the tax rate. Extension of the STCG tax on equities to three years seems feasible,” said Rahul Garg, partnerdirect tax at PwC India.
RajeshHGandhi, partner direct tax, Deloitte, said, “Introducing the LTCG tax could spook the markets.People may not mind the 15 per cent tax if the holding period goes up.” However, there were also representations on the adverse effect this could have on institutional investors, said a source aware of these deliberations.
“If the holding period for STCG tax is extended, it could lead to a churn in the market between the Union Budget and April 1 (when the proposal will implemented).Investors that have an incentive to hold shares for one year due to the zero LTCG tax are likely to exit counters they do not want to hold on to for longer periods,” said URBhat, managing director, Dalton Capital Advisors.
According to some other stock market players, this may not be the right time to bring in these changes because the market is the only part of the economy doing rather well.They also said bringing back the LTCG tax or extending the holding period of the STCG could be done only if the STT was removed, otherwise the tax burden would be significantly higher.
As in the past, brokers´ groups have this year again requested the finance ministry to do away with the STT to improve liquidity and the depth of the stock markets.
They have pointed out that the tax on traders amounts to double taxation since, unlike investors, they are assessed under the head ´business income´ wherein gains are taxed at the rate of 30 per cent plus surcharge and cess.
The STT is in addition to this 30 per cent tax. Alternative investment funds have informed the ministry about their set of demands.Industry players want clarity on the GST on management fees and expenses to be borne by foreign investors of domestic alternative investment funds.
Overseas money in alternative investment funds managed by Indian asset management companies are not exempt from the GST, which effectively adds 18 per cent to the cost of management.This could discourage managers from setting up India based funds, experts said.
Alternative investment funds want losses on investments to be available to investors for setoff. According to the Finance Act, 2015, unitholders cannot offset losses from the fund against other profits and gains.For CategoryIand II alternative investment funds, any loss atafund level is not allowed to be passed through to investors but is carried over at the fund level to be set off against income of the next year.
The other long standing demand is for Category III alternative investment funds to be granted pass through status, similar to what the government had provided CategoryIand Category II funds in 2015.The absence of pass through status means that income from such funds will be taxed at the fund level and the tax obligation will not pass through to the unitholders.
The Business Standard, New Delhi, 09th January 2018

Comments

Popular posts from this blog

RBI minutes show MPC members flagged upside risks to inflation

RBI minutes show MPC members flagged upside risks to inflation Concerns about economic growth and easing inflation prompted five of the six monetary policy committee (MPC) members to call for a cut in the repo rate, but most warned that prices could start accelerating, show the minutes of the panel’s last meeting, released on Wednesday. The comments reflected a tone of caution and flagged upside risks to inflation from farm loan waivers, rise in food prices, especially vegetables, price revisions withheld ahead of the goods and services tax, implementation of house rent allowance under the 7th pay commission and fading of favourable base effect, among others. On 2 August, the panel chose to cut the repurchase rate—the rate at which the central bank infuses liquidity in the banking system—by 25 basis points to 6%. One basis point is one-hundredth of a percentage point. Pami Dua, professor at the Delhi School of Economics, wrote that her analysis showed “a fading economic growth outlook, as …

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…

Differential Tax Levy under GST: Food Firms May De-Register Trademarks

Differential Tax Levy under GST:Food Firms May De-Register Trademarks The government’s decision to charge an enhanced tax rate on trademark food brands is leading several rice, wheat and cereal manufacturers to consider de-registering their product trademarks. Irked by the June 28 central government notification fixing a 5 per cent goods and services tax (GST) rate on food items packaged in unit containers and bearing registered brand names, the industry has made several representations to the government to reconsider the differential tax levy, which these players say is creating an unlevel playing field within these highly-competitive and low-margin industries. Sources say that the move has affected the packaged rice industry the hardest and allowed the un-registered market leaders, India Gate and Daawat, to gain advantage as compared to other registered brands such as Kohinoor and Lal Qilla. Smaller players are even more worried with this enhanced rate of tax (against the otherwise …