"The return on investment in equity is already attractive even without tax exemptions," he said. "There is therefore a strong case for bringing the long term capital gains from listed equities into the tax net." However, all gains up to January 31 from the sale of shares will be "grandfathered," he said.
The benchmark S&P BSE Sensex jumped 0.7 per cent at 1:40 p.m., erasing losses of as much as 1.3 per cent, as investors deemed the rate to be modest.
"By global standards, 10 per cent capital gains tax is not that prohibitive," Taimur Baig, managing director at DBS Bank Ltd. told Bloomberg Quint. "There are many countries who have had very successful capital gains regimes with significant degree of compliance and at much higher rate. It will not be a big deal at all."
Stock brokerages including Kotak Securities and CLSA India Pvt. had said in the run up to the budget that the government may make it harder for investors to claim exemptions on capital gains from equity investments as Modi's move in 2016 to scrap high-value currency bills and the implementation of the new sales tax last July had hurt demand and revenue.
The Sensex soared 28 per cent in 2017, beating the S&P 500's 19 per cent advance, as local funds bought a record $19 billion of shares, more than double the inflow from overseas.
The government, in July 2004, abolished long-term capital gains tax on shares and replaced it with the securities transaction tax (STT), a same-day tax credit system that's easy to administer and a stable source of revenue regardless of market conditions. The STT remains.
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