Remove LTCG Tax: 5 benefits it will offer – Complete Circle CIO says, ‘make it nil, increase tenure for…’ – Income Tax
Introduction
The Union Budget for 2024-25, presented by Finance Minister Nirmala Sitharaman, has sparked a debate about the Long-Term Capital Gains (LTCG) tax rate hike. The Finance Minister raised the LTCG tax rate from 10 per cent to 12.5 per cent on the sale of shares and mutual funds. While the move was intended to increase government revenue, it has been heavily criticized for discouraging long-term investments in the stock market. Here, Complete Circle Wealth’s CIO, Gurmeet Chaddha, suggests increasing the tenure for long-term capital gains tax exemption on equities to 2 years and making the tax nil, while maintaining short-term capital gains (STCG) tax.
Remove LTCG Tax: 5 benefits it will offer
By making the LTCG tax nil and increasing the tenure for long-term capital gains tax exemption on equities to 2 years, we can expect several benefits:
Boost Foreign Direct Investment (FDI)
Increasing the tenure for long-term capital gains tax exemption on equities to 2 years will attract more foreign investors, leading to a significant boost in FDI. This will not only increase the country’s foreign exchange reserves but also create more job opportunities.
Encourage Risk Capital
A nil LTCG tax rate will encourage risk capital to flow into the country, which will help fund our capex and create more jobs. This, in turn, will boost the GDP and increase economic growth.
Enhance Value for Public Sector Undertakings (PSUs)
By making the LTCG tax nil, the value of PSUs will increase, making them more attractive to investors. This will lead to an increase in their share prices, making it more attractive for foreign investors to invest in India.
Increase in Job Creation
The increased FDI and risk capital will lead to job creation, both in the private and public sectors. This will reduce unemployment and increase the overall economic activity in the country.
Preserve Short-Term Capital Gains Tax (STCG)
By maintaining the short-term capital gains tax, we can ensure that the revenue generated from the sale of shares and mutual funds is not reduced. This will help the government to increase its revenue without affecting the overall investment landscape.
Capital Gains Tax on Foreign Portfolio Investors (FPIs) – Should it be removed?
According to Capital Mind CEO, Deepak Shenoy, the capital gains tax on FPIs should be removed and the country should adopt global standards on this. "It’s useful to remove Indian cap gains taxes from FPIs," he said. "We should adopt global standards on this. Of course, also happy to remove it from local investors 🙂 but we are not so special that FPIs will come to India as the only country charging FPIs cap gains tax," he added.
Conclusion
By removing the LTCG tax and increasing the tenure for long-term capital gains tax exemption on equities to 2 years, we can expect a significant boost in FDI, an increase in job creation, and an enhancement in the value of PSUs. This move will not only increase the government’s revenue but also attract foreign investors, encouraging risk capital to flow into the country. As the Complete Circle CIO, Gurmeet Chaddha, has suggested, making the LTCG tax nil and increasing the tenure for long-term capital gains tax exemption on equities to 2 years is the way ahead.
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