Ever since the definition of long-term gains for debt mutual funds was changed from one year to three years, speculations around something similar being applied to equity-oriented investments as well have been ripe.
If the grapevine is to be believed, this could be a surprise that the Finance Minister could spring at us in this year’s Budget. Currently, all long-term gains, which is earnings from equity-oriented investments like shares and equity funds held for over one year, are completely exempt from tax. These gains are expected to be brought into the tax net.
Why tax long-term equity gains?
The rationale behind this change is that it is the richer class that invests primarily in these assets and earns the benefit of tax-free long-term capital gains. Furthermore, most countries around the world do tax long-term capital gains. If implemented in India, this tax could be downer as far as encouraging more retail money to come into the equity market is concerned.
The Finance Ministry has been focusing on making equity an attractive investment for a larger part of our population. The fact that long-term gains from equity were tax-free was a major selling point. Will this taxation, if implemented, turn prospective investors away from equity or not is something that only time will tell.
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