Taxing capital: Withdrawal of debt LTCG benefits should have been debated

The govt's step could push investors to choose riskier equity, or to fall back on bank deposits, thereby negatively impacting the debt market which actually needs to grow, writes T N Ninan

The government has bowled a googly by suddenly withdrawing tax benefits on long-term capital gains on debt instruments. It has included this last-minute change in a Finance Bill that has been passed by Parliament without debate. As it happens, India’s tax rates for capital gains have been far too lenient and favoured the top income-earners who comprise the bulk of the asset-holders. A review was therefore overdue, but not in the form of the government’s piecemeal approach.
 
The first issue is one of principle: That “unearned” income should not be taxed at lower rates than “earned” income. Not everyone