Government in 'wait and watch mode' as markets continue to tumble

The Budget 2025-26, despite the Income Tax rate cuts, estimated a 14.4% growth in Income Tax collections

There is a growing clamour for the government to intervene to arrest the fall in the equity markets. Some of the measures in the wish-list include a possible cut or abolishing of the long-term capital gains tax . There have also been renewed calls to reduce or even scrap the securities transaction tax (STT).

However, government sources say that they are in a ‘wait and watch mode’ and are not planning any immediate interventions. “We expect the markets to recover in six weeks or so and any tax-related changes would have been announced in the budget,” a source told Moneycontrol.

The government is of the view that the fall in the equity markets is being driven by global uncertainty and is a correction to what was an over-valued market, Thus the measures being suggested by the market participants do not necessarily address the issues.

On the Securities Transaction Tax- a tax payable in India on the value of securities transacted through a recognized stock exchange- the person added that the STT is anyway low. Referring to call to lowering long term capital gains tax, the source cited above added that the government cannot forego revenues especially when LTCG is not the reason for the fall in the equity markets.

There is a 0.1% STT levied on purchase of equity share.  Long Term Capital Gains tax is a tax levied on profits earned from the sale or transfer of certain long term assets such as stocks, real estate, mutual funds and so on. As of July 2024, a uniform 12.5% tax rate applies to long-term capital gains across all asset classes, regardless of indexation benefits.

The Budget 2025-26, despite the Income Tax rate cuts, estimated a 14.4% growth in Income Tax collections on robust Securities Transaction Tax revenues.

The Centre had increased STT rates in the 2024-25 budget across different trading segments. The rate for options trading was raised from 0.0625% to 0.1%, futures trading saw an increase from 0.0125% to 0.02% .

India’s small cap and midcap stocks continued to be battered on March 3, as they faced the worst crash since Covid, leaving a section of retail investors deep in the red.  As on end of February, Rs 94 lakh cr had been wiped out in investor wealth since the markets peaked in September 2024.