Budget: Stocks crash on budget misses over LTCG, fears over tax exemptions1 min read . Updated: 01 Feb 2020, 02:29 PM IST
- 10% long-term capital gains tax stays
- Individuals can pay lower tax on forgoing Section 80C
MUMBAI: Stocks tanked in the trade on Saturday as Finance Minister Nirmala Sitharaman’s 2020-21Union Budget, going against the expectations of investors and market participants, didn’t abolish or reduce the 10% long-term capital gains tax (LTCG) on shares. At 2:20 pm, the Sensex was at 40,200.44, down 523 points or 1.3% while the 50-share index Nifty tanked 154 points or 1.3% at 11,808. BSE Midcap and BSE Smallcap indices were down over 1% each.
The Sensex touched a low of 39,930.46 points and Nifty 11,717.45 during the session, falling 793 points and 244.65 points, respectively.
India charges 15% short-term capital gains tax (STCG) if equity shares are sold within a year and at 10% if sold after a year (LTCG).
Financial market participants had been lobbying for scrapping LTCG on investment in equity or equity-oriented funds or extending the holding period from the current one year to two years with nil tax.
The finance minister announced a change in the treatment of dividend distribution tax (DDT). From being taxed in the hands of the companies so far, it would now be investors paying the DDT. Companies will no longer have to pay DDT.
The FM proposed new income tax slabs and lower rates. She said that the income tax rates are optional and are available to those who are willing to forego some exemptions and some deductions. The new income tax rates will be significantly reduced for those who forego reliefs, exemptions.
She has also abolished the section in income tax benefits to avail deductions on payment of life insurance premium or 80C limit.
This announcement spooked the markets was giving individual taxpayers the option to forgo Section 80C that gives relief on investments up to ₹150,000 in certain instruments. With that investment becoming optional, insurance companies fear individuals will be reluctant to buy unit linked policies that currently figures amongst instruments enjoying tax exemptions. Shares of life insurance fell sharply on the news.
Insurance companies like ICICI Prudential Life Insurance down, HDFC Life Insurance down and SBI Life Insurance were down 6-8%.
Vikas Jain, Senior Research Analyst, Reliance Securities, said overall market breadth is deteriorating and the evolving pattern of the major indices including Nifty displays incremental fall.