Imposing LTCG Tax is right for India?

In 2018 budget, indian finance minister announced Long Term Capital Gain(LTCG) Tax.  It is not new to indian market, it was there till 2004 and reintroduced again in 2018. Let us discuss first what is LTCG Tax. LTCG tax is tax on profit we earn from stock market or mutual funds. The investment is more than 1 year, the earning from equity mutual fund is not taxable till March 2018.   From 2018 financial year, it would be taxable flat 10% if gain is more than 1 lakhs. This same kind of rule applicable for other mutual fund instrument and stock market.

Now the question is, Is it fine to introduce LTCG Tax in india?. I would say “it is wrong “, considering the proposed tax rule of 1 lakh gain. If we take it consideration of SIP of 5,000 rupees,for 10 years with 25% returns would easily comes to 260000 Lakhs.

Monthly investment : 5,000 rupees
Number of years : 10 years
Returns : 25%(at max)

Invested amount : 6,00,000 rupees (6L)
Expected amount : 26,00,000 rupees (20L)
Gain : 20,00,000 rupees (20L)
LTCG Tax : 2,00,000 rupees(2L) when you withdraw 26 lakhs at one shot after 10 years.

So easily it would reach more than 1 lakhs and we have to pay 2,00,000(2L) as LTCG tax. I believe 99% of mutual fund or stock market investor would get more than 1 lakhs as a gain.

China, Mauritius countries removed LTCG tax on investment to improve the investment habit among people. Removing the LTCG tax would make the investor comfort and easy to invest as no complex calculation involved in tax calculation.

In China, 20% population invest in stock market and mutual funds
In Mauritius, 10% population invest in stock market and mutual funds.
In India, 1.5% population invest in stock market and mutual funds.

India is still has to go long way to attract the people to investment.   1.5% would be very very less and I feel implementing LTCG would hinder the growth of the ratio. Instead of encouraging investment to flow into market, it would decrease the cash flow to market. Indian people used to invest in secure and risk free investment such as post office and FD. Now the awareness of invest in stock market and mutual fund started growing and big hit on that by LTCG tax.

Indian government says 3,67,000 crores gain in market and it had to bite. Now STT is already  implemented and government gets 9,000 crores as STT tax from market. Now they are expecting approx 20,000 crores from market as LTCG tax. It is necessary to implement that, but it should be implemented by keeping middle class investor in mind. Implementing 10% on gain would adversely affect middle class investors. Government should have thought of large investors and implemented the LTCG.

  • The LTCG should have been implemented like SIP of more than 5 years should be exempted from LTCG. It would highly encourage people to invest on market.
  • Increase in STT instead of LTCG. It could affected only large investor and active investor. Not the middle class investor who just invest and wait for long term.
  • At-least the 1 Lakhs limit should have set as 10 lakhs to safeguard the middle class investors.

It is my opinion on LTCG  Tax as a common man. Do not say “How common man provides suggestion on financial policies?”. I believe that government for common man and common man view should be considered on policies.  Anyway it is implemented and it is nothing to do with our investment habit. We are investing for long term and policy may change over time. So don’t worry about LTCG tax for now. Maximum we(investors) may lose 1% return by LTCG tax. We can think of participating in economic growth by LTCG and be a proud Indian:).

“With all these LTCG and STT, still stock market and mutual funds are smart and best investment in India”

Long term investors should never worry about policies and other external factors. Never leave our investment habit. Even though with all these LTCG and STT, still stock market and mutual funds are smart and best investment in India. Let us continue investing on. Happy and Smart Investing !!!

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