NEW DELHI: Ahead of the pre-budget consultation with revenue secretary Arvind Shrivastava on Wednesday, industry bodies were working out their final wish list on long-term capital gains tax (LTCG) – the most-discussed budgetary proposal this year.Executives at industry associations said that there were competing views from members and tax experts and a final call on how the demand should be worded was yet to be taken. While the proposal is not completely new, it has got a major thrust amid stagnant stock market indices and negative returns for foreign portfolio investors (FPIs) due to a weak rupee. The call gained further momentum after the Centre scrapped the 12.5% long-term capital gains tax on FPI investment in govt securities in June as part of a strategy to support the rupee.
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On Tuesday, while some of the bodies were finetuning their position, most strident were FPIs, demanding that govt abolish the tax at least for them. There are some supporters of this among industry representatives as well. But politically, especially with mutual funds and retail investors emerging as a large investor community, it may not be possible for govt to only focus on overseas investors and ignore the claims of domestic investors — more so, when complaints about high GST and personal income tax rates have just subsided.With revenue impact being a concern, there is some discussion around a graded reduction in LTCG. So, some industry representatives have suggested that short-term capital gains tax and securities transaction tax (STT) be retained in their current form and LTCG in year 1 also be left unchanged at 12.5%. But those who hold the shares longer should be charged concessional LTCG, which could fall to zero over three-five years.There is also a school of thought that STT should be abolished and LTCG be retained. Then, there are suggestions that STT should apply to F&O but be removed for the cash segment.There is also a section which believes that FPIs will come once stock market valuations correct further and the rupee stabilises.As finance minister has said in her public statements, she is keeping track of the debate. The outcome will be known only on Feb 1 when she presents a record-equalling tenth budget.
