Market participants will closely watch this year's Union Budget for any changes in taxation. The Union Budget 2020-21, which will be tabled in Parliament on February 1, comes at a time the economy is staring at the prolonged slowdown with official forecast pegging annual GDP growth at the slowest pace since 2008-09. Analysts say some relaxation on the long-term capital gains taxation is expected in the much-awaited Budget. (Also read: Stock Markets To Remain Open On Budget 2020 Day | Budget Expected To Give A Boost To Investments, Savings, Says Brickwork Ratings)
Here's all you need to know about long-term capital gains (LTCG) tax ahead of Union Budget 2020-21:
What is LTCG?
Reintroduced in 2018 after a gap of 14 years, LTCG or long-term capital gains tax is the tax payable on sale of assets such as equities and mutual funds after a period of one year from purchase.
LTCG on equities
Currently, a 10 per cent LTCG is applicable on sale worth more than Rs 1 lakh of equities and equity-oriented mutual funds held for more than one year.
The LTCG tax is applicable on profits arising from the sale of applicable assets - such as equity, mutual funds, property and gold - held for a period longer than one year from the date of purchase.
Considering that the short-term (less than one year) capital gain tax on equity and mutual funds is 15 per cent at present, long-term capital gain tax is aimed at encouraging the investor to hold on to their securities for a longer period of time, say financial experts.
Before the Union Budget 2018-19, capital gains were tax-free on assets held for at least one year.
LTCG relaxation on cards?
Rolling back LTCG tax will re-energise interest in stocks, bonds, property and commodities, and a possible extension in the holding duration will encourage long-term investment, according to news agency Bloomberg.
What experts say
Financial experts say that any relaxation on the LTCG tax applicable to equities will promote market participation.
"More money in the hands of people is the only solution today," says investment adviser Sandip Sabharwal, adding that in his view, any big ticket announcements in personal taxes are unlikely in the Union Budget 2020.
"As people consumer more it will create greater capacity utilization for corporates and that in turn will help in reviving the capex cycle as corporate cash flows have improved due to lower taxes and interest rates," says Mr Sabharwal, who expects a possible extension of the LTCG period to three years and "a zero tax beyond that".