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A day after Prime Minister Narendra Modi highlighted the need for stock market participants to make higher tax contribution, Finance Minister Arun Jaitley Sunday said the government has no plans to impose any long-term capital gains tax on investments in stock markets. Speaking at a SEBI event on Saturday, Modi termed the tax collection from securities market participants as “low”, and attributed it to the structure of tax laws and to possible fraud.
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Jaitley said the PM speech had been “misinterpreted” in some parts of the media. “We have started speculating that this (PM speech) is indirect reference to the fact that there could be long-term capital gains tax on security transactions. There is no opportunity for anybody to reach such a conclusion because this is not what the PM said, nor is it the intention of the government as reported. This interpretation is absolutely erroneous, the PM had made no such statement directly or indirectly,” Jaitley said on the sidelines of an event to promote digital transactions, as per a PTI report.
Any plan to impose tax long-term capital gains, which are currently tax-exempt in the securities market, would have negative implications.
In his speech on Saturday, Modi had clearly stated the government’s intent to raise the tax level in securities market, even though he did not specifically mention taxing long-term capital gains.
“…those who profit from financial markets must make a fair contribution to nation-building through taxes. For various reasons, the contribution of tax from those who make money on the markets has been low. To some extent, it may be due to illegal activities and fraud. To stop this, SEBI has to be extremely vigilant. To some extent, the low contribution of taxes may also be due to the structure of our tax laws. Low or zero tax rate is given to certain types of financial income. I call upon you to think about the contribution of market participants to the exchequer. We should consider methods for increasing it in a fair, efficient and transparent way. Earlier, there was a feeling that some investors were getting an unfair deal by using certain tax treaties. As you know, those treaties have been amended by this government. Now it is time to re-think and come up with a good design which is simple and transparent, but also fair and progressive,” Modi said.
The government has already amended tax treaties with Mauritius and Cyprus, plugging the key loophole which enabled foreign investors to skip paying even short-term capital gains taxes.
At present, if an investor is holding a stock for more than 12 months, it is considered long-term. Any long-term gains from transaction in such stocks are exempt from taxes. Gains from transactions in shares held for less than 12 months are considered short-term capital gains and are subject to 15 per cent tax.
But for a trader in the securities market, the gains are considered as business income and taxed at the slab rates of 10, 20 or 30 per cent. The budget for 2017-18 will give final clarity on taxation of capital gains.
