Budget 2023: From unlisted market to listed equities, why investors wish for easing in LTCG
4 min read . Updated: 18 Jan 2023, 08:10 PM IST
Premium- Currently, the capital gains tax regime is vast and seen as a complex with different rates levied for different types of assets and holdings in the markets.
Simplification in the tax structure such as long-term and short-term capital gains are some of the tax reliefs investors are hoping for in the upcoming Budget of 2023. FM Nirmala Sitharaman will present the budget for the fiscal year 2023-24 which will be her fifth budget as the finance minister. Currently, the capital gains tax regime is vast and seen as a complex with different rates levied for different types of assets and holdings in the markets.
LTCG and STCG taxes are levied on profits or gains from the transfer of capital assets which can be properties, securities, equity shares, ULIPs, jewellery, and mutual funds among others. However, the tax rate is different for both LTCG and STCG. The rates further vary in LTCG depending upon the type of assets.
In taxation terms, any capital assets which are held for a period of more than 36 months immediately preceding the date of its transfer --- are called long-term capital assets and hence are liable for long-term capital gain tax rate. However, LTCG is levied on equity shares having a holding period of more than 12 months.
The same is vice versa for STCG. For equity shares or securities, short-term capital gains arise when the holding period is less than 1 year. For others assets, the holding period is less than 36 months in short-term cases.
Currently, long-term capital gains are charged at a 20% rate plus surcharge and cess as applicable. However, in certain cases such as listed securities, UTI units, or mutual funds, the LTCG is charged at 10% plus surcharge and cess. Whereas, the short-term capital gains tax rate is 15% plus surcharge and cess.
For the upcoming budget, Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services explained that since the fiscal deficit is high and the government is facing revenue constraints, it will not be realistic to expect major concessions in the budget.
However, Vijayakumar added that one reform that is overdue is the simplification of the capital gains tax regime which is presently very complex with different rates for different assets and different holding periods. This is an expectation from the budget.
According to Tejas Khoday, Co-founder and CEO of FYERS, since 2018, long-term capital gains on listed equities & equity mutual funds continue to be levied at 10%, beyond a holding period of at least one year and a threshold of only Rs.1 lakh. The upcoming Union Budget could increase the threshold limit to a higher amount, thereby boosting the surplus income in the hands of investors.
Further, Khoday added, "While the government does need tax revenues to support the various budgetary allocations, any relief in the long list of taxes – LTCG, STCG, CTT, stamp duty, GST – would play a pivotal role in increasing capital market participation."
On the other hand, Krishna Raghvan, Founder of Unlistedkart highlighted the need for easing in LTCG for unlisted equity shares.
As per Unlistedkart founder, currently, in the country, LTCG shares are taxed at 10% unlisted equity investments are taxed at 20%. From Budget 2022 there was a maximum cap of 15% on Long term capital gains as previously unlisted investments were liable for a maximum surcharge of 37%.
Also, the period of holding for listed equity to become long-term is 12 months, while this is double for unlisted equity as they become long-term when the holding period is over 24 months.
Raghvan said, "the capital gains tax law is very complicated in India with respect to various classes of assets, tax rates, and period of holding and indexation benefits. A restructuring of the same like bringing in uniformity for tax rates, period of holding, and compliances would close the gap between listed and unlisted equity."
Additionally, Raghvan also shed some light in regard to public offerings. He said, before the IPO goes live, companies must now publish the price per share based on the initial issuance and any secondary sales or acquisitions in the previous 18 months. The price band is also anticipated to be approved by a committee of independent directors based on a number of numerical parameters. This is done in an effort to give investors additional information so they may decide for themselves whether or not to subscribe to the IPO issue.
Similarly, Satyen Kothari, the founder, and CEO of Cube Wealth said, "there are a lot of varied expectations from budget 2023. We can expect some tax relief for salaried employees given the downturn in the global economy and increasing inflation and related to this, there is palpable hope for some changes in the income tax slabs. There is some buzz around a change in Section 80C limits, a reduction of GST, etc."
Kothari also added, "investment product taxation, i.e. LTCG and STCG may see simplification since there are many disparities in this area, especially in terms of private and public instrument investments. We of course, are not in the business of predicting and will continue focusing on helping people build balanced, long-term, personalised portfolios."
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
