Finance Minister Nirmala Sitharaman said on Tuesday that the government would be keen to hear views on the removal of long-term capital gains tax during pre-Budget consultations. She stopped short of committing to any changes, saying the timing was not right to indicate what she would or would not consider with the Budget around the corner.
Markets responded immediately. The Sensex jumped 1,109 points, or 1.54%, to close at 73,033. The Nifty rose 358 points, or 1.60%, to 22,721. The rally added over Rs 4 lakh crore to the combined market capitalisation of listed companies.
The current LTCG framework taxes profits on equity shares held for more than a year at 12.5%, with an exemption for gains up to Rs 1.25 lakh per financial year. That rate was raised from 10% in July 2024, and the exemption was increased from Rs 1 lakh at the same time. Short-term capital gains on listed securities attract a 20% tax. On top of this, investors pay Securities Transaction Tax on both purchase and sale, a levy that was originally introduced as a substitute for capital gains tax, not an addition to it.
Tax advisors argue there is a case for rationalisation. One partner at a tax advisory firm pointed out that the double incidence of LTCG tax and STT makes equity transactions expensive and less attractive, particularly for foreign capital inflows. The suggestion is that abolishing LTCG on listed shares and reducing the qualifying holding period would simplify compliance and improve market attractiveness.
Whether the FM’s signal translates into action in the upcoming Budget remains to be seen. But the market’s instant reaction to even a hint of review shows how much the current tax structure weighs on investor sentiment.
Source: Deccan Herald
