The sell-off in equity markets is due to a weak global sentiment and not because of long-term capital gains tax announced in the budget, said Finance Secretary Hasmukh Adhia. The remarks by the top bureaucrat came on the day the benchmark stock indices Sensex and Nifty dropped up to 1.6% in morning trade.
The decline continued for a third session on heavy profit booking by investors.
Adhia said the 10 per cent tax on long term capital gains (LTCG) is a “subsidised rate” as such gains on sale of unlisted scrips and immovable property are taxed at 20 per cent.
“It is very unfortunate that our move came in at wrong time because of global markets also going down. There is a strong connection of all equity markets. The MSCI all country index of equity markets went down by 3.4 per cent in last week, especially on Thursday Friday,” Adhia said in a post-budget meet organised by industry body CII on Monday.
“If the entire world index has gone down by 3.4 per cent, naturally it would have ripple effect on Indian stock market also. It is not LTCG tax effect,” he said.
The Indian stock market was no exception to global markets which also suffered losses of up to 2.4 per cent today after deep correction in the US markets last week triggered by a sharp rise in Treasury yields, he told the gathering.
The Budget for 2018-19 imposed a 10 per cent tax on LTCG of over Rs 1 lakh made on sale of shares from April 1. However, no tax will be imposed on the gains made up to January 31, 2018.
“There is nothing that you are going to lose by selling it immediately. So it’s not the effect of LTCG tax, it is the overall index of the equity market which has changed in other countries of world,” Adhia said.
Adhia, who is also the revenue secretary, said the income of government from Securities Transaction Tax (STT) is a paltry Rs 9,000 crore.
Currently India imposes a 15 per cent tax on short term capital gains made of sale of shares within a year of purchase. However, gains made after a year of purchase is exempt from the levy.
The Budget 2018-19 has reintroduced the provision of taxing long term capital gains after a gap of 14 years.
Meanwhile, explaining the reason behind imposition of LTCG, the government said that exempting such income from tax was inherently biased against manufacturing and encouraged diversion of investment to financial assets.
(With inputs from PTI)