Finance Minister Nirmala Sitharaman has presented the general budget of the country. Many important announcements have been made in this budget. If you earn huge profits by investing in the stock market, there is good news in the general budget. The government has fixed the Long Term Capital Gains (LTCG) limit.
Now investors will have to pay an LTCG surcharge of not more than 15 per cent. This provision will apply to all types of assets. Presently LTCG surcharge is available only for listed shares and units of mutual funds. At the same time, there was no cap on a surcharge on long term capital from other assets.
To understand in a simple language, the long term capital charge from other assets used to be based on the total income. For example, 37 per cent of the LTCG surcharge was to be paid if a person had capital gains of more than Rs 5 crore during the year. However, after the government’s new decision, now it will be a maximum of 15 per cent.
Who benefits: According to the stock market expert’s, those investors who make huge profits by investing in the stock market will benefit the most by fixing the limit of LTCG in the budget. These include from institutional to other types of big investors. It means that the government’s latest decision will attract investors to invest in the market. Such investors play a big role in boosting the stock market.
Applicable since 2018: Let us inform you that from the year 2018, long-term capital gains on the sale of listed equity shares have been made taxable. In the case of equity investment, long term means holding of more than one year from the date of purchase. Earlier, capital gains earned on equity investments were tax free.
Why the government has no plans to abolish LTCG?
Responding to a question in Parliament, Minister of State for Finance Pankaj Choudhary said in December 2021 that the government will not abolish the long-term capital gains tax for the time being. Also, there is no idea to increase the long-term capital gains tax period for mutual funds and equities from one year to two years.
Let’s explain how much income the government earns annually from this tax.
The government has divulged information on the income earned from LTCG tax from 2018-21. The government stated that in the assessment year 2018-19, it received Rs 1,222 crore in LTCG tax. Subsequently, in n the assessment year 2019-20 and 2020-21, Rs 3,460 crore and Rs 5,311 crore were earned.
The government also earns Securities Transaction Tax (STT) on the shares traded on the stock exchange. When one buys or sells shares in the stock market, STT has to be paid on it. The seller pays 0.025 per cent tax on the sale of shares. This tax is to be paid on the sale price of the shares. The sale of delivery based shares or units of equity mutual funds is taxed at the rate of 0.001 per cent.
Which other assets attract LTCG?
In addition to the stock exchange, the Long Term Capital Gains Tax levies Capital Gain Tax on profits made from the sale of house, property, jewellery, car, bank FD, NPS and bonds. According to the Income Department website, generally, long-term capital gains are taxed at 20% (in the form of surcharges and cess), but in some special cases, 10 per cent on profits (plus surcharge and cess as applicable) are taxed.