Market Awaits Capital Gains Tax Relief in Budget
The Indian equity markets are bracing for a possible cut in capital gains tax or removal of securities transaction tax (STT) in the upcoming budget. Market indices have dropped by 11% from their peak, and investors are looking for positive cues to boost c
Capital Gains TaxIndian Stock MarketForeign Portfolio InvestorsBudget 2025Securities Transaction TaxReal EstateJan 30, 2025
Since October, FPIs have been net sellers to the tune of Rs 1.74 lakh crore.
Several factors contribute to this capital outflow, including policies from the Trump administration, an overheated Indian market, and a relatively poor economic forecast.
However, many market analysts believe that India's aggressive tax policies have also played a significant role.
The government, in last year’s budget, increased the tax on short-term capital gains from equities from 15% to 20%, and on long-term capital gains from 10% to 12.5%.
With the budget just around the corner, the investor community is hopeful for a possible cut in capital gains tax or the removal of the securities transaction tax (STT).
It is worth noting that STT was introduced in 2004 after the removal of long-term capital gains tax on equities.
In 2018, when the government reintroduced the LTCG tax, it did not eliminate the STT, which currently stands at 0.1% on delivery-based sale and purchase of shares.
Sameer Arora, founder and fund manager of Helios Capital Management, recently suggested on X that cutting the long-term capital gains tax rate to 10% could demonstrate how wrong the FPIs are in selling Indian stocks.
While Arora’s post seems to be a light-hearted response to well-known investor Shankar Sharma’s critical column on India’s inability to retain foreign investors, the general sentiment among investors is that the government’s decision to increase capital gains tax was a mistake.
Venkat Nageswar Chalasani, CEO of the Association of Mutual Funds in India (AMFI), says the industry hopes the budget will prioritize investor confidence by restoring indexation benefits for debt funds and rationalizing the capital gains tax regime.
In addition to raising the LTCG tax rate, the government last year removed the option of a 20% tax with indexation benefit on long-term capital gains from real estate, gold, and bonds.
The benchmark indices have fallen by 11% from their peak on September 26 last year.
Equity markets are now eagerly awaiting positive signals from the budget to find relief from the persistent bearish sentiments.
'The market is looking for cues for a directional view, and a cut in capital gains tax might just be one of the stimuli the market needs,' says Vikas Sachdeva, managing director at Sundaram Alternate Assets.
However, he adds that the probability of such a cut seems low.
Both long-term capital gains tax and STT have become significant revenue sources for the government.
In the fiscal year 2022-2023, the government collected Rs 98,600 crore from the LTCG tax.
Collections from STT are expected to reach Rs 45,000 crore in the fiscal year 2024-2025.
Frequently Asked Questions
What is the current long-term capital gains tax rate in India?
The current long-term capital gains tax rate in India is 12.5% for equities.
Why are foreign portfolio investors pulling out of the Indian equity market?
Foreign portfolio investors are pulling out of the Indian equity market due to factors such as Trump’s policies, an overheated market, a poor economic forecast, and aggressive tax policies.
What is the Securities Transaction Tax (STT) and what is its current rate?
The Securities Transaction Tax (STT) is a tax levied on the sale and purchase of certain securities. The current rate of STT is 0.1% on delivery-based transactions.
What changes do market analysts hope to see in the upcoming budget?
Market analysts hope to see a possible cut in capital gains tax or the removal of the securities transaction tax (STT) in the upcoming budget.
How much revenue did the government collect from the long-term capital gains tax in 2022-2023?
The government collected Rs 98,600 crore from the long-term capital gains tax in the fiscal year 2022-2023.
Tags:
Related News Articles
Real Estate License School Software Market to Witness Rapid Growth by 2034
The global Real Estate License School Software Market is expected to reach USD xx.x billion by 2032, growing at a CAGR of xx.x% from 2024 to 2032. Key players include REAL ESTATE EXPRESS, VanEd, Dream Town Realty, and Aceable.
Bachchan Father-Son Duo Acquire 10 Mulund Apartments, Boost 2024 Real Estate Portfolio to ₹100 Crore
Amitabh and Abhishek Bachchan have purchased 10 apartments in Mulund for ₹24.95 crore, significantly enhancing their real estate portfolio which now stands at over ₹100 crore. | Mumbai
Cricketer Imran Patel Passes Away Due to Cardiac Arrest During Match in Pune
Imran Patel, a dedicated sportsman and a well-known figure in the cricket community, tragically passed away during a match in Pune. He leaves behind a family and friends who are deeply saddened by his sudden loss.
Real Estate Stocks: Be Selective on Regions and Companies
When buying stocks in certain sectors like fintech or pharma, you can often ignore economic research. However, in the real estate sector, it's crucial to be selective and consider both macro and micro factors.
Chris Wood's Strategic GREED & fear Portfolio Adjustments: What He's Buying and Selling Now
Chris Wood, a renowned investment analyst, has made significant changes to the GREED & fear long-only portfolios. Discover what he's buying and ditching to stay ahead in the volatile market.
2 Undervalued Stocks Trading Below Industry P/E: A Buying Opportunity?
PNB Housing and MOFSL are currently trading below the industry P/E. Despite PNB Housing's slower AUM growth, its NPA levels have shown improvement. On the other hand, MOFSL is benefiting from favorable market conditions.