Market watchers said Union Finance Minister Nirmala Sitharaman’s move to hike long term capital gains (LTCG) tax from 10 per cent to 12.5 per cent will discourage savings and investments.
“Just when the stock market has been having a good run for a long time, the news dampened the spirits… It is an unnecessary move,” Gaurav Bora of Laksh Financial Solutions told The Indian Express. “By making taxation change in long term capital gain from 10% to 12.5% and in short term capital gain from 15% to 20%, the government is trying to make the New Tax Regime more attractive with revised tax rates but it discourages saving and investment habits of taxpayers as there is no tax benefits under the new tax regime,” Bora said.
Citing the latest data from the ministry of statistics, Bora said net household savings have declined sharply by Rs 9 trillion to 14.16 trillion in the three years to FY23. “Overall, India’s household savings rate has fallen from 22.7% of GDP in FY21 to 18.4% in FY23. The FM has removed indexation benefit. This may lead to higher tax burden on real estate sales. Earlier, the long term capital gains from property were taxed at 10% with indexation benefits. According to the Budget documents, the new tax rate for long term capital gains on property sales will be 12.5% without indexation benefit. Removal of indexation benefits and the subsequent reduction in profitability from real estate transactions may lead to investors staying away from assets that are taxed at a higher rate,” Bora said.
C S Iyer, senior investment planner, said the Indian stock market declined significantly on Tuesday, after the Union Budget, as the government proposed to raise the tax on capital gains and on trading derivatives. “This should not have happened. When people are taking to stock market in a big way why discourage them. There was lot of disappointment in the stock market industry on Tuesday. One hopes the FM will take note of it and withdraw her move.”
However, Rohit Gera, Managing Director, Gera Developments, said, “The move to align long term capital gain tax for real estate with other financial assets is a positive move and will make investment in real estate more attractive. Eliminating indexation will hurt people who have long term investments in real estate.”
Sathyan Iyer, retired Income Tax officer, said, “The hike in long term capital gains tax to 12.5% from 10% will not be in the interest of either the middle class or the rich class.”
However, Iyer said the exemption limit for long term capital gains tax has gone up to Rs 1.25 lakh from Rs 1 lakh. “The exemption limit, which has been hiked by Rs 25,000, will certainly help in saving money for the taxpayer. There will certainly be some saving despite the hike in LTCG,” he added.
Babu Nair, a small scale entrepreneur, said, “The Budget has failed the poor, the middle class and even the affluent class. It has nothing for small time businessmen like me. Why would people investment in share market when the government is regularly hiking the LTCG tax? The bank interest rate has declined sharply and therefore people were turning to share market and mutual funds. Instead of making them attractive destination, government is making them look like a costly proposition.”
Sachin Bhandari, Executive Director and CEO, VTP Realty, said, “Developers heavily reliant on investors will be adversely affected by the government’s decision to rationalise the long term capital gains tax, reducing it from 20% to 12.5%. However, the elimination of indexation benefit when applying LTCG means the overall tax outflow will be higher under this new regime. This move is likely to dampen investor sentiment, removing key incentives and directly impacting developers dependent on investors.”
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