Budget Impact on your Capital Gains Tax Rate | Motilal Oswal
Budget Impact on your Capital Gains Tax Rate | Motilal Oswal

Tax Implications of Short Term Capital Gains

  In the upcoming budget 2017, it is estimated that the capital gains tax could be hiked up from 15 % to 20 % if the stocks or shares are sold within a year from the time they were bought or purchased. Narendra Modi 's move that capital gains cannot get away with lower tax slabs has panicked the stock or equity markets, on the whole. Arun Jaitley, the Finance Minister of the nation has however confirmed that long-term capital gains are not taxable even if the equities are held for over two years and above. There are however quite a lot of speculations that Modi 's moves could cause changes in tax rules, especially in the stock markets. Implications or the consequences of short-term capital gains tax that is hiked:   This move of the Govt. is actually an encouraging one. It helps stockholders to retain their equities or mutual funds for a longer duration of time. Instead of selling your stocks or shares in less than a year and invoking taxable short-term capital gains running to 20 %, you can allow your investments to grow. When you maintain your stocks or investments over 2-3 years, you are not only entitled to receive an entire tax exemption but can also sustain yourself from unforeseen losses. Investors who wish to sell their stocks or shares immediately not only invite higher amount of tax but also have to end up selling their stocks or shares for a loss. Listed stocks or shares can be categorized as short-term or long-term investments. When you sell these within 6 months, it becomes a short-term capital gains investment. The Govt. might issue a slight lee-way if you own the shares and stocks of PSU 's and blue chip companies. By this move, quite a lot of mutual fund investment companies are expanding their horizons exponentially. A number of investors will now redeem their shares or equity funds after 2 to 3 years. Moreover, with online companies offering easy access to loans, satiating your short-term needs need not be a hassle anymore. Hence, in a nutshell, you can conclude if short-term gains are taxed at a higher slab, investors will hold on to their stocks for longer duration to escape a heavier incidence of tax falling into their wallet. Tax professionals look at one more silver lining if the minimum holding period is extended. Investors will be able to discover a bigger window to set off their losses arising from distress sale of stocks or equities. This is against other forms of taxable gains. Short-term losses can be set off, against other taxable gains. Long term losses cannot be adjusted. The hiked up tax slabs for short-term capital gains would put a full stop to people treating the stock market like a money-making den. The ones who make big money too quickly by using manipulative ways will not be spared, anymore. It is quite surprising to note that more than 37 % of investments in equity funds are redeemed within one year. If short-term capital gains tax slabs are increased from 15 % to 20 %, investors would be keen to expand their investment portfolio rather than just making hot cash. This way, the income of the investor will grow at a steady pace. Already the ruling Govt. has amended treaties with Mauritius, Singapore, and Cyprus to remove the tax advantage Foreign Institutional Investors or FII 's enjoyed over their domestic counterparts. Quite a lot of investors will now invest their money into FD 's or mutual funds as well. The financial industry can expand its range of operations to serve more prudently in favor of the ever-growing Indian economy. Hiked up short-term capital gains tax slabs can imply removal of Securities Transaction Tax. STT can pool in revenue of Rs 7,400 Crore every year. Once the STT is removed, government will have to earn this money through hiked up taxes on capital gains. For long-term investors, they get an accrued dividend of 10 % or more. For example, if they hold on to their stocks or securities for a longer duration of time, they can reap the benefits along with an extra 10 % hike. The various aspects of hiked up capital gains tax have thoroughly been discussed above for an easy and precise understanding.

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