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Indexation may be allowed to soften capital gains blow

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NEW DELHI: The government on Friday indicated that it may tweak the long-term capital gains tax on shares and equity mutual funds in the future to align it with norms for other sectors such as property, which will allow investors to adjust the value of their investments to inflation.

The indexation benefit even with a 20% tax, instead of the concessional 10% proposed in the budget on Thursday, will result in savings and will especially benefit those who stay invested for long periods.

“Like in the case of immovable property, we have indexation benefit but the holding period is two years and the rate is 20%. We must move in that direction for all classes of assets. Since it was one year only, we didn’t want to give benefit of indexation,” finance secretary Hasmukh Adhia told TOI in an interview, but did not indicate any time frame. In case of immovable property, the holding period for LTCG tax is 24 months.

Several market experts have suggested that the government should allow indexation benefit, which helps those who hold their investments for a longer period. In the current regime, those who have invested in a scheme for, say, a child’s education needs 10 years later, may be at a disadvantage.


Adhia, however, maintained that the interests of small investors had been protected by providing exemption for gains up to Rs 1 lakh.

Exemption of Rs 1 lakh will help small investors

Amid falling stock market indices, the top finance ministry official said currently there were two concessions available to investors reporting gains from investment in stock markets and the government had decided to tap into massive gains of Rs 3.67 lakh crore, which remained untaxed until last year if the investments were sold after holding them for over 12 months. “There are two concessions.

Short-term capital gains tax is 15% instead of normal marginal rate of tax (of up to 30%) that you pay. Two, longterm capital gains tax is only 10% instead of 20% for other asset classes. That’s why, due to the special dispensation, we are continuing STT (securities transaction tax),” he said.

Updated: February 2, 2018 — 6:44 pm

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