FM hikes short & long term capital gains tax, Sensex & Nifty crack

Short-term capital gains tax raised to 20%, long term to 12.5%

The stock market’s worst fears came true on Tuesday with Finance Minister Nirmala Sitharaman announcing hikes to both the long-term and short-term capital gains tax (LTCG and STCG). The government has also hiked the securities transaction tax (STT) on derivatives trade.

LTCG on all financial and non-financial assets have been hiked from 10 per cent and 12.5 per cent. While STCG on certain assets has been hiked from 15 per cent to 20 per cent.

The budget, however, has offered some relief by increasing the exemption limit for LTCG to Rs 1.25 lakh from Rs 1 lakh at present. Assets sold within 12 months attract STCG, while those held for over 12 months attract LTCG.

The budget also announced that listed financial assets held for more than a year will be classified as long term, while unlisted financial assets and all non-financial assets will have to be held for at least two years to be classified as long-term.

Unlisted bonds and debentures, debt mutual funds and market linked debentures, irrespective of holding period, however, will attract tax on capital gains at applicable rates, the FM said.

Furthermore, the FM has proposed to increase the rates of STT on sale of an option in securities from 0.0625 per cent to 0.1 per cent of the option premium. The STT on sale of futures in securities has been increased from 0.0125 per cent to 0.02 per cent.

“While the increase in capital gains exemption will encourage the middle class to invest more in equities, mutual funds, and other linked products, an increase in long-term capital gains tax to 12.5 per cent will have a significant impact on HNIs’ decision process of investing in alternative asset classes where money is typically tied in for 4-5 years,” by Pearl Agarwal, Founder and Managing Partner, Eximius Ventures.