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Rs 400 bn: The windfall govt could have made had LTCG tax come last year

Above assumption has been made on the basis that 10% of the rise in m-cap the past one year was booked

Samie Modak  |  Mumbai 

Rs 400 bn: The windfall govt could have made had LTCG tax come last year

The government would have made a windfall had the tax on (LTCG) been introduced in last year’s Union Budget. Sharp rally in the equity and record mobilization through during 2017-18, could resulted into gains in excess of Rs 400 billion (Rs 40,000 crore) by certain assumptions. India’s in the past one year has increased by Rs 40,646 billion (Rs 40.6 lakh crore) between January 31, 2017 and January 31, 2018. Assuming the manner of LTCG implementation would have been the same, the potential LTCG gains for the government translate into Rs 4,064 billion (Rs 4 lakh crore). To be sure, the tax is levied on the gains that are booked and there would always be a question mark on whether the market would have gained as much as it did in the past one year had the tax been imposed. However, given the exuberance in the global market, it isn’t out of place to assume that Indian equities too would have gained even though the tax would have been introduced a year ago.

If one assumes around 10 per cent of increase in market value is booked gets booked as long-term gains, it translates into tax outgo of Rs 406 billion (Rs 40,600 crore).

Change in m-cap
Market cap (Rs bn) in Rs bn in % LTCG collection*
Jan 31, 2017 112,563
Jan 31, 2018 153,210 40,646 36 4,065
Feb 05, 2018 147,957 -5,252 -3 -525
Source: Prime Database; *Potential gains
Secondary share sales through IPOs
No. of issues Amt raised (Rs bn) LTCG collection**
FY18 38 551 55
Buybacks
No. of issues Amt acquired (Rs bn) LTCG collection**
FY18 40 489 49
**Assuming holding period for all shares old was over 12 months
Starting April 1, the centre will levy a 10 per cent tax on LTCG—gains made on shares held for more than a year. Currently, there tax on LTCG is nil. The government has grandfathered earlier investments, by making stock prices on January 31, 2018 as the reference rate for further gains. Interestingly, India’s market cap is down by Rs 5,252 billion (Rs 5.25 lakh crore) since January 31, 2018. In other words, most investors are currently are starting at mark-to-market losses on their investments. The new tax will also be levied on secondary share sales through IPOs, block deals or those tendered in So far in FY18, there have been 38 large secondary share sales in the Indian market worth Rs 551 billion and another 40 where shares worth Rs 489 crore have been acquired. Some of the big block deals this fiscal include Rs 96 billion worth of share sale in by or Rs 38 billion worth of share sale by the promoters of through offer for sale (OFS). Assuming all the shares sold or tendered were held for more than 12 months, the centre would have collected Rs 104 billion on them in the form of To be sure, some portion of these shares was sold by the government and hence, the net impact on those cases would be zero.

First Published: Mon, February 05 2018. 21:22 IST
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