New Delhi: Finance Minister Nirmala Sitharaman on Sunday said the decision not to remove Long Term Capital Gains (LTCG) tax in the Budget was because utility of this tax so far has not been tested due to poor market conditions and therefore government has not been able to assess the returns from it.
She was responding to a query on the non-removal of this tax in Budget 2020.
"Had the market been at a high, then we would roughly have been able to estimate what amount (it can give us). We didn't have that advantage, so it remains there," the Finance Minister told IANS in an interaction.
Detailing the decision behind the status quo of LTCG, the minister said,
"There were many demands not just from market but from many others. We tried to accommodate some; we accommodated DDT, not LTCG," she said.
"LTCG was introduced two years ago. Much before we could see what could be generated out of it, the market tanked and it couldn't give us any substantial returns. I said you have to wait for at least one year by old definition. We are talking of clarity and just that time when LTCG would have been lucrative. Then the situation was such that the market wouldn't have been able to deliver that kind of return even as the time was coming for the calculation of long-term gains, there was a depression in the market".
"If the tax was not giving anything much, it's not fair to withdraw it, as I didn't even have a calculation of what could have come out of it".
Most market players were anticipating a rollback of LTCG tax as well as an extension of holding period to qualify for the tax.
Returns on investments in equity MFs held over a year are treated as long-term capital gains and taxed at 10% on gains of over Rs 1 lakh in a financial year. The LTCG tax was re-introduced by Arun Jaitley, the then Finance Minister, in his Budget speech on 2016.
While re-introducing the LTCG tax, Jaitley also provided relief to existing equity investors in the form of grandfathering of returns. This clause exempted returns made before January 31, 2018.
In Budget 2020, the Finance Minister has removed the DDT or Dividend Distribution Tax, but it is going to be included in the income of the shareholder.