Tweaks to capital gains tax could be a sentiment dampener: Experts

The discussion around capital gains is complex, says Radhika Gupta, CEO, Edelweiss Mutual Fund

AMFI has suggested that the LTCG on listed equity shares or units of equity-oriented fund schemes, held for more than one year and up to three years, be subjected to LTCG tax at the rate of 10 percent on capital gains exceeding Rs 2 lakh in a financial year.

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The discussion around capital gains is complex, says Radhika Gupta, CEO, Edelweiss Mutual Fund, in conversation with Moneycontrol.

On expectations, Gupta added, "If you say that long-term capital gains tax, which is 10 percent after one year, becomes 10 percent after three years, that is one speculation but if you say that long-term capital gains tax is going to become 20 percent after one year, or is going to become marginal after one year, I think that is a very meaningful amount," she added.

Gupta stressed the need for consistency in tax policy. "This constant flip-flop in tax policy, I don't think helps anyone," she said.

Dhirendra Kumar, CEO, Value Research added that capital gains should not be taxed because their appreciation or optimism in the short term is largely a function of corporate income.

"Consumers are not directly paying for this, but from a market standpoint, it is beneficial. The scale of money coming in from small capital gains may not be as significant as larger capital gains," he said adding that the implications of taxing capital gains can impact market disinvestment as FII investments or disinvestments are counterbalanced by mutual fund investors.

"Taxing capital gains acts more as a sentiment spoiler than a significant source of immediate revenue," Kumar said.

Gupta also noted that there was scope for taxation on F&O .  "It doesn't do anything in terms of capital formation. It is not funding growth capital for the country. And the investor can move more than what they put in. So, I would be pretty surprised if there was nothing towards the intent of F&O taxation," she added noting that she hopes there is realisation on the difference between productive liquidity, which is liquidity in the equity markets, long-term cash equity liquidity, liquidity like SIPs, versus what is going on in F&O.

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