The stock markets are roaring and alive. After demonetization, you and other investors must have thought, it's the end of the game. But, stock markets have surprised. In the last year, investors have been dumping money in stocks and equity mutual funds. The stock markets have been racing. The year 2017 has been the best year for IPOs. When a Company offers its shares to the public for the first time, it's called an IPO.
More than $12 Billion was raised from IPOs in 2017. For years, FIIs (Foreign Institutional Investors) have been the main investors in the Indian stock market. Today, DIIs (Domestic Institutional Investors) are investing a lot of money in stock markets.
One of the main reason you and other investors invest in equity? It's because of the tax benefits. If you stay invested in equities for a year or more, profits are called long-term capital gains (LTCG). There is no tax on long-term capital gains.
Now there's talk of a tax on long-term capital gains on equity. These are 4 reasons to tax, capital gains on shares. Want to know more on tax planning? We at IndianMoney.com will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice / education to ensure that you are not mis-guided while buying any kind of financial products.
The Union Budget 2018-19 will be presented on 1st February 2018, by Finance Minister Arun Jaitley. You must be waiting in anticipation for this budget. Will there be a tax on long-term capital gains on shares?
Its popularly believed that if the Government introduces LTCG on shares and equities, foreign investors will run away from Indian stock markets. Not true. Only 5 countries don't tax LTCG on equities.
They are the Cayman Islands, Cyprus and Mauritius which are tax havens. (Tax haven is a country which offers foreign individuals and businesses very low taxes, with almost no financial information shared with foreign tax authorities).
Singapore and Hong Kong are International Financial Centers. Take a look at Western Countries, Australia has a capital gains tax rate of 30%, Denmark has a capital gains tax rate of 22%, Germany has a capital gains tax rate of 15% and Finland has a capital gains tax rate of 20%.
If European countries can charge tax on long-term capital gains on equities, then why not India?
SEE ALSO: Smart Tips To Pick Stocks
A lot of foreign investors pump money into China. Now, domestic investors are investing heavily in China. China has a 25% capital gains tax. Are foreign investors running away from China?
Global investors are looking for growth and not just tax benefits. If India remains one of the fastest growing economies, genuine long-term investors will continue to invest in the Indian Growth Story.
The main goal of an efficient tax system is to tax the rich and the well-to-do and give the poor some benefits. This helps in the even distribution of wealth. The main argument was the citizens of India need to invest in equities, as very few citizens invest in them. To encourage investors, a tax benefit was necessary.
Today, you and other domestic investors are pumping money in equities. Investors are pouring money in equities via SIPs. SIP inflows were nearly Rs 6,000 Crores in November. Do you still think a tax benefit is necessary to draw investors into equities?
4. Tax on capital gains must be real and proper
There are temptations to just tinker (make adjustments to), the meaning of short-term capital gains (STCG). If you invest in equities and sell within a year, your gains/profits are called short-term capital gains. STCG are added to your taxable salary and taxed as per your tax bracket. The temptation is to change the meaning of short-term capital gains (STCG) to mean two years instead of one year.
If you stay invested in equity for a year or more and then sell, gains must still be LTCG. Only there must be a 15% tax or at least 5-10% tax on LTCG.
The Prime Minister Narendra Modi has been chasing tax evaders. Demonetization and GST have been major steps in preventing tax evasion. Linking of PAN to Aadhaar and Aadhaar to Bank Accounts is making tax evasion really difficult. Now, why not tax capital gains on shares, which helps mainly the rich? Be Wise, Get Rich.
Mr. C S Sudheer is the founder and CEO of IndianMoney.com – India’s largest Financial Education Company. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.
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