Budget 2017: Investors cheer as Long-Term Capital Gains Tax untouched

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CONTRARY TO widespread speculation that the government will change the norm relating to holding period of stocks, the Union Finance Minister Arun Jaitley made no mention of any tweaking of Long-Term Capital Gains Tax. It had an instant positive impact on the stock market, which registered a year’s high on the budget day. The Sensex rallied 485.68 points, or 1.76 per cent to 28,141.64, while Nifty too shot up by 155.1 points, or 1.81 per cent to 8,716.45.

“Speculation was rife that they government may change the holding period of stocks from one year to two or three years to get tax exemption. But, it was heartening to note that the government did not take any such negative step,” said Gaurav Bora, a stock broker associated with Motilal Oswal Securities Ltd.

Bora said with the government restraining itself from taking any foolhardy steps, the stock market has reacted positively. “There were several positives in the budget for the stock market. One, the fear of individual investors and institutional investors were allayed by the finance minister, who neither tweaked the holding period of Long-Term Capital Gains Tax nor increased the Securities Transaction Tax. Similarly, the FM’s proposal to infuse Rs 10,000 crore in PSU banks and allocating Rs 3.96 lakh-crore for infrastructure sector and granting infra status to affordable housing sector, lifted the mood of the market. It was the best day in last several months,” said Bora.

Manohar Garande, an individual investor, said, “Had the FM taken the step of increasing the holding period of securities for tax exemption, I am sure the market would have crashed. At a time when the demonetisation had hit all the sectors, it was expected that the budget will spread cheers and it has done on expected lines,” said Garande.

Bora said Long-Term Capital Gains Tax was the much-discussed topic among investors, who feared the worst. “It would have forced millions of investors to think twice before trading in stock market. I am sure the government did not want it to happen,” he said. Chandrashkehar S Iyer, a senior citizen, said the budget was expected to be a soothsayer and a balm for those frayed nerves, experienced since the announcement of demonetisation. “The stock market was badly affected due to demonetisation.

The budget has provided a great stimulus to growth and pushed rural housing. The impact was immediately felt on the market, which rose to a new high,” said Iyer, adding that the FM did the sensible thing by not touching the Long-Term Capital Gains Tax. Under the existing government norms, gains made on a listed company stock are tax-free if the investor exits after a year. “An individual investor, who is fed up with low returns from bank fixed deposits, approaches the stock markets with the hope of making gains and will not have to pay tax. But he does this with considerable risk to his investments as the highly-volative stock markets shoots up his blood pressure as well,” said Bora.

Garande said not only individual investors, but even several big-ticket institutional investors would have disappeared from the market if FM had dared to change the Long-Term Capital Gains Tax. The long-term capital gains was made tax exempt back in 2004.

In December last year, the Prime Minister’s comments at an event in Mumbai had unnerved the stock market. He said the contribution to the exchequer by security markets participants is low. “Those who profit from financial markets must make a fair contribution to nation-building through taxes,” said Modi, which had hugely impacted the market.

However, Finance Minister Arun Jaitley quickly clarified the next day that the Centre had no intention to impose tax on long-term capital gains in the stock market. “The interpretation was absolutely erroneous and that PM had made no such statement directly or indirectly. This is not what the PM said, nor is it intention of the government as reported,” Jaitley had clarified.