Budget 2022 for Stock Markets, Mutual Funds Investors: Long Term Capital Gains (LTCG) Tax relief expected

Union Budget 2022 expectations for Stock Markets and Mutual Funds investors: It is expected that the upcoming Budget 2022 would provide various Long Term Capital Gains Tax relief to stock markets and mutual funds investors. Experts believe that the elimination of the LTCG tax on the sale of equity shares listed in India would boost investment through the stock exchange.

“The imposition of the long-term capital gains tax (LTCG) had shattered investor confidence. Long-term capital gains on the sale of Indian-listed equity shares should be exempted by the government. Alternatively, it might offer a tax break to investors who have held the assets for more than two years. Major economies do not have LTCG tax. The government could consider eliminating this levy to boost investment through the stock exchange,” experts at Tax2Win said in their Budget expectations for this year.

Saurrav Sood, International Tax expert at SW India, said the disparity between LTCG and annual income up to Rs 5 lakh should be removed.

“For an individual, income is taxable as per slab rates, making income up to Rs 2,50,000 tax-exempt. By adding the standard deduction, marginal relief benefit, and Section 80C benefit, there can be a situation where no tax is payable on income up to Rs 500,000 per annum. However, in the case of long-term capital gain, such exemption is only up to Rs 100,000 only. This disparity should be looked into by increasing the exemption limit of long-term capital tax to a higher level,” Sood said.

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Sood further said that the slab rate of tax for an individual goes up as high as 30% at present. Such a high rate of taxes should be reduced, and rather Government should find ways to increase the tax base by making penal provisions for non-filing of tax returns stricter. The more the base of tax filers in India, the more it makes a stronger case of reducing the tax rates since the loss of revenue from reducing tax rates will be compensated by a bigger and wider base of taxpayers.

Simplify LTCG across asset classes

Experts at the Confederation of Indian Industry (CII) have also recommended the Government to “simplify capital gains taxation for consistency in tax rates and holding period for different asset classes.”

Remove speculative income concept

Experts are of the view that Budget 2022 help build momentum in the equity markets and every possible avenue must be considered by the government to make this happen.

“The government should remove the concept of speculative income and restrict income classification arising from capital market transactions to business income, long-term capital gains and short-term capital gains. We hope that the Government considers tax exemption up to Rs 1,00,000 lakh on short-term capital gains tax as well as tax exemption on dividends up to Rs 50,000 for senior citizens,” Puneet Maheshwari, Director, Upstox, said.

Maheshwari further said that the Government may consider relieving traders of the securities transaction tax (STT). “By doing so, new investors would be encouraged to start trading. There needs to be more participation in indexes or exchange-traded funds. By offering a lock-in and tax incentives on the lines of equity-linked tax savings schemes, the government can encourage long-term savings in Nifty or Sensex. A greater allocation by the government-owned provident funds and pension funds into equity markets could also help.”

Tax parity in ULIPs, MFs

The Association of Mutual Funds in India (AMFI) has proposed to “bring parity in tax treatment of capital gains on withdrawal of investments in ULIPs of Life Insurance companies and redemption of Mutual Funds Units, so as to bring about level playing field between ULIPs and MF schemes.”

Justifying the proposal, AMFI said in its pre-Budget suggestions said that even as ULIPs are considered insurance products for tax purposes, they are essentially investment products that invest in securities like mutual funds but with insurance benefit.

“SEBI, in its ‘Long Term Policy for Mutual Funds’, published a few years ago, had emphasized that similar products should get similar tax treatment, and the need to eliminate tax arbitrage that results in launching similar products under supervision of different regulators. We have been highlighting about the tax arbitrage between Mutual Fund Schemes & ULIPs in the past also and the need to bring about parity between the two,” AMFI said.

“While Finance Act 2021 has reduced this gap to some extent, it is requested to bring complete parity, so that there is a level playing field among the players in financial industry,” it added.