Budget 2018: Tax on LTCG on listed shares to hurt stock brokers

Budget 2018 brought back the dreaded tax on long term capital gains (LTCG) on the shares of listed companies in India. The Finance Minister Arun Jaitley also taxed the dividends announced by the equity mutual funds. These two are seen as negatives by the stock brokers in addition to the slightly higher target of 3.5% of GDP as compared to 3% expected earlier.

Brokers were demanding to remove the securities transaction tax and commodities transaction tax to cut the transaction costs in India and boost the volumes. However the Finance Minister did not change these taxes at all. There was also a demand to offer some incentives for the newly launched commodity options. But the Finance Minister looked the other way.

The reduction of tax on corporate earning to 25% was extended to all corporates with turnover up to Rs 250 crore. Though this covers 99% of the companies, as per Finance Minister Arun Jaitley in his Budget speech, the listed universe of companies do not benefit from this lower rate of tax due to high turnover. Put simply, it will not enhance the corporate earnings, as envisaged in the run up to the Budget 2018.

The tax on LTCG is expected to reduce the volumes, thereby affecting the stock brokers. Also the tax on equity funds will reduce the attractiveness of the equity mutual funds. This may adversely affect the commission income of the brokers.

Though the emphasis on the corporate bonds may open a new avenue for the brokers, it will take its own course. In the near term the budget 2018 is expected to hurt the stock brokers.