Higher Taxes Investment In Capital Market


Prime Minister Narendra Modi on Saturday hinted at increasing taxes on capital markets, adding that his government would not hesitate from taking tough decisions such as demonetisation.

“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,” said Modi during his speech at an event organised by capital market regulator Securities and Exchange Board of India (SEBI). The PM, along with Finance Minister Arun Jaitely, was present at the event to inaugurate a new campus of National Institute of Securities Markets (NISM), an educational arm of Sebi, on the outskirts of Mumbai.

Currently, Long-Term Capital Gains (LTCG) on the sale of listed securities are exempt from taxes. LTCG are profit on sale of shares on a stock exchange platform after a holding period of one year or more. Meanwhile, Short-Term Capital Gains (STCG), profits on sale of shares held for less than 12 months, are taxed at a flat rate of 15 per cent. Besides these, all stock market transactions also attract Securities Transaction Tax (STT) in a range between 0.017 per cent and 0.125 per cent.

“To some extent, the low contribution of taxes may also be because of 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,” said the PM at the event.

The comments triggered a discussion among the attendees, particularly those operating in investment banking, broking and the mutual fund space.

“The government might be considering changes to the LTCG structure. Either they would increase the time period to avail LTCG or bring such gains under the tax net as well. Both will be negative for the market,” said a senior official with an investment bank, who attended the event but asked not be named as the issue was still not formally taken up for discussion by the Centre.

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