NEW DELHI: Despite increasing pressure from India Inc, the government does not seem to be in mood to reduce the Long-Term Capital Gain (LTCG) Tax and Dividend Distribution Tax (DDT) in the upcoming Budget.“The DDT and LTCG were reintroduced after much deliberation. We have not seen any adverse impact on market due to them. There is no point in reducing these taxes in the coming months,” a senior finance ministry official told TNIE.
The LTCG was reintroduced in the February 2018 Union Budget by former finance minister Arun Jaitley to shore up tax collection and curb the misuse of stock exchange platform for tax evasion. Accordingly, the tax was imposed on gains made on shares being held for more than one year. Investors in equity-oriented mutual funds were also included in the LTCG tax net.
The DDT is levied on the company, along with additional dividend tax levied on the shareholder who receives over Rs 10 lakh as dividend. While no figure has been given separately on the DDT collection from the market, Jaitley had estimated it to be in the tune of Rs 20,000 crore. “In view of grandfathering, this change in capital gain tax will bring marginal revenue gain of about Rs 20,000 crore in the first year. The revenues in subsequent years may be more,” Jaitley had said.
However, both the corporate and mutual fund industries are now requesting the government to abolish this tax. In a submission to the Union government, the brokers’ associations said that the present form of adversarial taxation on the dividend of around 20 per cent, results in triple taxation of corporate earnings.
Recently, CII also requested government to reconsider this proposal. “If the dividend received is more than Rs 10 lakh, there is an additional tax levy of 10 per cent. When the investor sells his equity after holding on to it for 12 months (for listed shares) or 24 months (for unlisted shares), a long-term capital gains tax of 10 per cent is applied on the profit amount exceeding Rs 1 lakh. This imposes a high burden on equity investments,” CII said.