ARUN JAITLEY’S SPEECH: 10% tax imposed on long-term equity gains

Finance Minister Arun Jaitley has removed the tax exemption given to long-term gains derived from the sale of equity shares, and instead imposed a 10% tax on long-term gains from the sale of equity shares.

This is what he said in his budget speech on this issue:

“The total amount of exempted capital gains from listed units (shares) is around Rs 3.67 lakh cr as per 2016-17. Major part of the gains has been accrued to corporates and LLPs. This has also created a major bias against manufacturing, leading to more business surpluses being invested in financial assets.

“The return on investment in equity is already attractive even without tax exemption. There is, therefore, a strong case for bringing the long-term capital gains from listed equities into the tax net. However, recognizing the fact that a vibrant equity market is essential for economic growth, I propose only a modest change in the present regime.

“I propose to tax such long terms, exceeding Rs 1 lakh, at the rate of 10%, without allowing the benefits of indexation. However, all gains up to 31st January 2018 will be grandfathered. For example, if an equity share is purchased six months before 31 January 2018 at Rs 100 and the highest price quoted on 31 January 2018 is Rs 120, there will be no tax on the gain of Rs 20 if the share is sold after one year from the date of purchase.

“However, any gain in excess of Rs 20 made since 31st January 2018 will be taxed at 10% if this share is sold after 31 July 2018 (when it would have completed 1 year with the purchaser). The gains from equity held up to 1 year will continue to be short-term gains and will continue to be taxed at 15%.”

After falling almost 1% on the announcement, the benchmark Nifty index regained its composure and is now trading up 0.2%.

The imposition of the tax could result in channeling investment directly into real assets instead of routing it via equity shares.

Tax slabs for personal income tax were kept unchanged, but there were some tweaks on reimbursements for conveyance and medical expenses.

He said there will now be a standard deduction of Rs 40,000 in lieu of transport and medical reimbursements to salaried employees. Medical reimbursements in case of hospitalization will continue. The move will benefit 2.5 cr salaried and pensioned persons, Jaitley said in Budget 2017-18. Tax slabs remain unchanged.


FULL TEXT: Arun Jaitley’s Budget Speech for 2017-18