Union Budget 2018: Long-term capital gains exceeding Rs 1 lakh to be taxed at 10%

New Delhi: Finance Minister Arun Jaitley on Thursday proposed to tax long term capital gains exceeding Rs 1 lakh at the rate of 10 percent without allowing the benefit of any indexation.

Presenting the Union Budget 2018-19 in Parliament, Jaitley said that all gains up to 31st January, 2018 will be grandfathered.

The Finance Minister also proposed to introduce a tax on distributed income by equity oriented mutual fund at the rate of 10 percent to provide level playing field across growth-oriented funds and dividend distributing funds.

He elaborated that in view of grandfathering, this change in capital gain tax will bring marginal revenue gain of about Rs 20,000 crores in the first year 2018-19. The revenues in subsequent years may be more.

Jaitley added that currently, Long Term Capital Gains arising from transfer of listed equity shares, units of equity oriented fund and unit of a business trust are exempt from tax.

With the reforms introduced by the government and incentives given so far, the equity market has become buoyant.

“The total amount of exempted capital gains from listed shares and units is around Rs. 3,67,000 crores as per returns filed for A.Y.17-18. Major part of this gain has accrued to Corporates and Limited Liability Partnerships (LLPs). This has also created a bias against manufacturing, leading to more business surpluses being invested in financial assets. The return on investment in equity is already quite attractive even without tax exemption. There is therefore a strong case for bringing Long Term Capital Gains from listed equities in the tax net” Jaitley said.