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Feb 05, 2018 01:55 PM IST | Source: Moneycontrol.com

Finance Secretary Hasmukh Adhia says LTCG tax did not trigger equity market sell-off

Adhia attributed the fall to decline in global equity markets, which had a ripple effect in India

The introduction of long-term capital gains tax on the sale of listed securities did not trigger the sell-off in domestic equity market on Friday, Finance and Revenue Secretary Hasmukh Adhia said on Monday.

Adhia attributed the fall to decline in global equity markets, which had a ripple effect in India.

“There is a strong connection of all global equity markets now. In MSCI, all country index in equity market went down by 3.4 percent in last week and particularly in the last two days,” he said at a post-budget industry event.

“If entire world's index has gone down by 3.4 percent, naturally it will have it's ripple effect in Indian stock exchange also. So it is not LTCG effect. LTCG effect because you have grandfathered should not be there. Why should you do a distress sale now?” he added.

On Thursday, Finance Minister announced that long-term capital gains (LTCG) in equity markets will now be taxed at 10 percent. Under the new regime, any capital gains arising from the transfer or sale of a long-term capital asset being an equity share or a unit of an equity-oriented fund will be taxed if profits exceed Rs 1 lakh during the fiscal year 2018-19.

However, all gains until January 31,  2018, will be grandfathered and short-term capital gains remain unchanged at 15 percent.

For example, if you have capital gains of Rs 1.5 lakh during the fiscal year 2018-19 on equities, then you will be taxed on Rs 50,000 (gains above Rs 1 lakh) paying Rs 5,000 as a tax on your profit at the time realisation of an asset.

The move surprised D-Street as most analysts were factoring in a change in the definition of ‘Long Term’ to 2 or 3 years from 1 year.

After the announcement, equity markets witnessed a bloodbath. Sensex shed around 900 points intraday, while the Nifty breached 10,750-mark as well.

The fall in Friday's market capitalisation on the Sensex to Rs 1,48,54,452 crore from Rs 1,53,13,033.38 ensured that investors took away Rs 4.5 lakh crore off the market.

Experts attributed this huge fall on the back of several factors, including announcements made in the Union Budget, the LTCG, the slippage on the fiscal deficit side and rising bond yields that dragged indices lower.

India Union Budget 2018: What does Finance Minister Arun Jaitley have up his sleeve? Click here for live Budget 2018 news, views and analyses.
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