Stock market analysts are expecting no tweaks to long-term capital gains (LTCG), short-term capital gains (STCG) and security transaction tax (STT) on equities in the Union Budget 2024, although they believe the holding period for classifying assets as long-term or short-term could be harmonised across different asset classes. Manish Chowdhury, Head of Research at StoxBox said he does not expect any change in the tax rate for both LTCG and STCG but finds a remote possibility of raising the tenure for calculating LTCG on equity from one year to two years. "The move would be aimed at addressing concerns relating to the increased short-sightedness by market participants. The increased tenure would help in cementing flows into the equity markets, especially from retail investors. The institutional flow is unlikely to be affected as most of the money is invested from a medium to long term perspective," he said.
The Economic Survey 2024 released on Monday suggested significant increase in retail investors and the rising trend of speculation in the stock market. It suggested that derivatives trading holds the potential for outsized gains and, therefore, caters to humans' gambling instincts. At present, STCG on equities are taxed at 15 per cent while long-term capital gains over Rs 1 lakh are taxed at 10 per cent. The government levies a 0.1 per cent STT on each equity sale or purchase transactions on stock exchanges. Short-term capital gains on all other assets are taxed as per an individual’s income tax slab, while long-term capital gains are taxed at 20 per cent with indexation benefit. "Way back in 2004, (STT) replaced the long-term capital gains (LTCG) tax. But the Budget 2018 brought back LTCG, levied again at a rate of 10 per cent on annual gains of over Rs 1 lakh but STT was not removed. The biggest positive trigger for Dalal Street in the upcoming Union Budget could be abolition of STT," Mehta Securities said.
Kotak Institutional Equities said the central government may maintain a stable policy related to capital gains tax, even as there seems to be a view of rationalising taxation across asset classes over time. "There is a decent probability that the government may express its views and seek broader consultation in the same. Meanwhile, the increased participation of small investors in derivatives, coupled with large losses, may result in the government dis-incentivizing participation in these instruments; this is outside the purview of the budget though," it said.
Shrey Jain Founder and CEO SAS Online said the FM should consider increasing the LTCG exemption limit Rs 5 lakh from Rs 1 lakh. "STT was introduced in lieu of removing tax on LTCG But now investors pay both STT and LTCG on equity transactions. This issue needs to be addressed," he said. Trivesh D, COO at Tradejini said he does not see any tweaks to LTCG or STCG taxes but wishes for a reduction in LTCG tax to 5 per cent in a bid to encourage long-term investments. As per the Economic Survey 2024, retail investor's share in the equity cash segment turnover was at 35.9 per cent in FY24. The number of demat accounts with both depositories rose from 11.45 crore in FY23 to 15.14 crore in FY24. The impact of this influx of individual investors in the market is also reflected in new investor registrations with the exchanges, their share in total traded value, net investments, and ownership in the listed companies, the survey noted. "Currently, the market isn’t anticipating negative surprises in areas like income tax, LTCG, STCG, or STT. However, any changes could have a short-term negative impact,” said Krishna Appala, Sr. Research Analyst, Capitalmind Research. Apurva Sheth of SAMCO Securities has a blunt answer. "Every year, ahead of the Budget, there is a lot of speculation about changes to LTCG/STCG but nothing has materialised yet. We should accept that taxes and death are certainty and move on in life."