Union finance minister Nirmala Sitharaman on Monday acknowledged retail investors’ growing concerns over the long-term capital gains (LTCG) tax regime, assuring that these would be “considered.”
Sitharaman said she “appreciates” the equity market’s voices on the matter, adding that they need “support.” Speaking at an event in Mumbai, the finance minister further cautioned that tax concessions alone could not be the principal driver of market performance.
While she pointed out that the current taxation structure was also in place between 2023-2024, when the country witnessed good FPI (foreign portfolio investment) inflow, Sitharaman also acknowledged that “circumstances had changed” since then.
“The taxation was similar even then. Nothing differently was done for drawing investments. But of course the situation is very different now. Circumstances have changed. Challenges have grown. More FII outflows net have happened,” Sitharaman said, adding that voices of concern were “louder” owing to this. She said, “I quite appreciate that. So I will consider all this.”
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What is the LTCG tax? How does it affect investors?
The LTCG tax is levied on profits earned from selling a long-term capital asset, i.e. listed equity shares and equity mutual funds which have been held for more than 12 months. While long-term capital gains on equity up to ₹1.25 lakh in a financial year are exempt from taxation, gains exceeding this amount are taxed at a flat rate of 12.5% (plus applicable surcharge and 4% cess) without indexation benefit.
A higher LTCG would mean reduction in post-tax returns, with investors now also claiming “double-taxing”, given that companies already pay corporate income tax on earnings. The debate over LTCG gained momentum after the Securities and Exchange Board of India (SEBI) recommended scrapping of the tax on foreign investors, according to a report by news agency Reuters. This comes amid concerns that the tax on capital gains can discourage foreign capital from staying in India, as compared to other countries which offer more tax-friendly environments.
Also Read | Debate on LTCG, securities tax ‘healthy’, says Finance Minister Nirmala Sitharaman
‘We need capital and equity’: Sitharaman on sustaining 7% economic growth
Sitharaman highlighted that the investors’ concerns come at a time when “growth is very important.” She said that the country needs “capital and equity” to sustain an economic growth of 7 per cent and above.
“Although last few years I have been placing a lot of emphasis on bond market, deepening it, widening it. Now we also have this voice which says, come on, even equity needs that kind of support,” the finance minister asserted. While Sitharaman said she did not want to say anything more “at this stage”, she said she “recognised the voice.” Sitharaman had, last month too, said it was “healthy” to have a debate on LTCG, adding that she was “keen” to hear investors on the matter.