Knowledge Centre

Impact of tax on long-term capital gains (LTCG)

Updated on 03 February 2018

Union Budget 2018-19 has many high points for agriculture, infrastructure building, and health insurance sectors besides many other areas. However, the reintroduction of the tax on long-term capital gains (LTCG) after 14 years has attracted investors’ attention the most. Although trade analysts and investors were discussing long about the imposition of LTCG tax, it still perplexes the investors’ minds. The big question is how this tax would influence trade and plans of the investors. Are the worries of investors just transitory or lifelong?

Tax slab- In this union budget, the tax imposed on long-term capital gains (LTCG) of 100000/ or more is 10%. The tax slab on short-term capital gains is 15%. Therefore, the gap between long and short duration capital gain has closed to the minimum.

The trade analysts are skeptical, as visible from the initial reaction on SENSEX, which dropped by 2.3 % on February 2 when it closed for the day. The hurried selling is the reason for this downtrend. However, the experts believe, this impact is temporary and things will settle down and look up with the inclining economy.

Why imposition of tax on LTCG at all?

The government needed to boost their tax structure, post-GST and demonetization therefore LTCG tax imposition was mandatory for them. With this tax reform, the government expects to gain INR 50,000cr every year.

The positives sides of LTCG tax

  • The growth in corporate earnings and the overall economy expected to climb. As per experts’ analysis, this is likely to grow by 18 to 20% in next 2 to three years.
  • New LTCG tax will not affect small investors below one-lac rupees capital gain.

What should be the stand of Long-Term Investors?

There is no need to hit a panic button and sell off in desperation. Based on a simple logic of past growth, that has taken India to become a 2.5 trillion dollars economy. The fresh analysis pips our economy to become double in size in next decade. The GDP growth is heading towards the 8% mark and likely to hit that mark soon.

The trust in Indian economics is very strong for the foreign investors, their inflow of funds has been reported to be an all-time high. The domestic investors should stand to gain as well by economy’s steady growth.

The investors should look up for some progressive minded companies for their investments, not those who bend your mind set on the negative sides.