MUMBAI: Investors were relieved as the finance minister Nirmala Sitharaman avoided an increase in the long-term capital gains tax on equity investments and securities transaction tax in the Union Budget for 2021-22 announced today.
Heading into the Budget, most investors were concerned that the government may look at increasing the long-term capital gains tax or the securities transaction tax in order to boost its revenues, especially as the stock market has witnessed a breakneck rally since the beginning of April.
In her Budget speech in July 2019, the finance minister had reintroduced the long-term capital gains tax after 15 years. Currently, individuals who make capital gains of more than Rs 1 lakh on their equity investment after a holding period of more than one year have to pay a tax of 10 per cent on the capital gains.
However, the capital gains tax for individuals in the highest bracket of earnings comes around 15 per cent inclusive of a cess.
Money managers had said that the government needed to bring out an equity friendly Budget, implying no changes in taxations related to the stock market, in order to ensure that its divestment plans went smoothly in the next fiscal year.
Many had feared that a hike in long-term capital gains tax could damage the sentiment of investors in a way reminiscent of the sell-off post the reintroduction in July 2019.
The 30-share pack Sensex advanced 2,314.84 points or 5.00 per cent to end at 48,600.61. Its broader peer, NSE Nifty climbed 645.60 points or 4.74 per cent to end at 14,281.20.