Brokers disappointed as government introduces LTCG tax on equities in Union Budget 2018

Stock brokers today expressed disappointment over the introduction of long-term capital gains tax, saying the markets may react negatively in the short-term.

A broker reacts while trading at his computer terminal at a stock brokerage firm in Mumbai. (File | Reuters)

NEW DELHI: Stock brokers today expressed disappointment over the introduction of long-term capital gains tax, saying the markets may react negatively in the short-term.

However, some brokers said the move will be healthy for the overall economy.

"The other key takeaway for me was the introduction of the 10 per cent long-term capital gains tax. In the longer term, I think taxing capital gains is healthy for the overall economy. Needless to say, there will be a knee-jerk reaction to this in the market, but my guess is that this would be short-term in nature," said Nithin Kamath, Founder and CEO, Zerodha.

The government today introduced long-term capital gains (LTCG) tax of 10 per cent on stock market gains exceeding Rs 1 lakh, sending the market tumbling.

"Rationalisation of LTCG as expected has arrived, though negative on sentiments but robust equity returns will absorb this 10 per cent if corporate earnings growth happen as expected," said Kamlesh Rao, MD and CEO, Kotak Securities.

"... introduction of LTCG may disappoint equity markets to some extent. Reduction in corporate tax rates for MSME companies will bring them back on growth track," said Anita Gandhi, Whole Time Director at Arihant Capital Markets Ltd.

The BSE benchmark Sensex crashed over 400 points in afternoon trade today after Finance Minister Arun Jaitley announced 10 per cent LTCG tax in his Budget speech.

"The much anticipated introduction of LTCG is now back with a new avatar. As we know in tax legislation, this could only get worse over a period of time with every successive budget diluting the original commitment of taxing long term gains," said Milind Kothari, Managing Partner, BDO India.

"The budget has proposed a long-term capital gain tax on profits over Rs 1 lakh from equity transactions made post 31st January, 2018 at 10 percent of total gains. However, any profit made till 31st January, 2018 is exempted from LTCG.

This move was expected. Introduction of LTCG will lead to the Sensex falling at least in short term," said Monish Panda, Founder, Monish Panda and Associates.

Securities markets expert and former Sebi Executive Director Sandeep Parkeh said withdrawal of full LTCG exemption will have a "big negative impact for investors".