Discussions over potential changes to India's capital gains tax regime have stirred apprehension among market participants, prompting varied reactions from analysts and investors.
Christopher Wood, Global Head of Equity Strategy at Jefferies, in an exclusive interview with CNBC-TV18, downplayed immediate concerns, suggesting that any adjustments may not have as drastic an impact as initially feared.
Wood drew parallels with global practices, noting that jurisdictions like Hong Kong operate without capital gains taxes, which he believes could stimulate greater investment and market expansion if adopted in India. However, he acknowledged the importance of structuring capital gains taxes to favour long-term investments, advocating for significant differentials between short-term and long-term tax rates. “Capital market tweaks in the budget will hurt markets more than the election verdict reaction,” he added.
Capital gains refer to the profit earned from the sale of assets or investments, such as equities.
Analysts expect current tax rates for short-term and long-term gains to remain unchanged. Presently, long-term gains from property are taxed at a rate of 20 percent, with provisions for inflation adjustment.
Market experts anticipate a nuanced response from investors, predicting that fiscal adjustments in capital markets could overshadow immediate reactions to electoral outcomes. As discussions continue, stakeholders await clarity on the government's stance amid evolving economic conditions.
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With the Union Budget for 2024-25 scheduled for July 23, market attention is focused on potential announcements related to Long Term Capital Gains (LTCG) tax. A recent survey conducted by Moneycontrol in partnership with Deloitte, involving 78 CEOs across sectors, underscores the anticipation surrounding a potential overhaul of the capital gains tax regime with streamlined holding periods.
In a recent statement on X (formerly Twitter), Samir Arora, founder of Helios Capital, cautioned against tightening the capital gains tax regime. Citing China's example, he suggested that even a reform-minded budget could disappoint investors if it neglects their interests.
"Reforms should respect the end investors, explicitly and implicitly," Arora emphasized, advocating for stability and warning against sudden changes to capital gains taxes, terms, or rates that could undermine market sentiment.
Echoing Arora's concerns, Raamdeo Agarwal, chairman of Motilal Oswal Financial Services, advocated for maintaining status quo in the upcoming budget. He stressed the current balance in equity markets and suggested that stability in taxation is crucial to sustain it. Agarwal also proposed a bold initiative, urging the government to consider income tax exemption for earnings up to Rs 12 lakh per annum to stimulate consumer spending.
As the budget approaches, these viewpoints highlight industry sentiments and expectations regarding fiscal policies that could shape investor confidence and market stability in the coming year.
The Association of Mutual Funds in India (AMFI), in its pre-budget recommendations, has suggested significant revisions to the Long Term Capital Gains (LTCG) tax structure on listed equity shares and equity-oriented fund units.
Under the proposed changes, AMFI recommends that gains from listed equity shares or equity-oriented fund units held for more than one year but up to three years should be subject to a LTCG tax rate of 10 percent on capital gains exceeding Rs 2 lakh in a financial year.
Additionally, AMFI proposes that gains from these assets held for more than three years should be completely exempted from capital gains tax.
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