💰 Economy
Government seeks views on cutting taxes on stock market gains
In 60 seconds: The government has asked investors, market players and tax experts for their views on long-term capital gains (LTCG) tax and securities transaction tax (STT), as foreign investors pull money out of Indian shares. Indian stocks have lost about $924 billion in market value since their September 2024 peak. Finance Minister Nirmala Sitharaman said there is 'a lot of debate', but any relief must be balanced against lost revenue.
Why it matters
Taxes on market gains affect what investors keep. Cutting them could bring foreign money back, but the government would collect less.
Explain it simply
A chai shop charges a small fee on every cup sold and another when the owner sells the shop at a profit. Lower fees bring more buyers, but the town collects less money.
The 3-minute read
What happened
The government has begun reassessing capital market levies and is consulting investors and experts. Earlier, on 13 October, the Finance Minister said budget preparation had started and it may not be the time to say what she would or would not consider.
Background
LTCG tax applies to profit on shares held over a year; STT is charged on each trade on the exchange. LTCG brought in about ₹1.3 lakh crore in FY25. Foreign investors have been selling, and there have been calls to ease these levies.
How it works
The government must balance revenue: the fertiliser subsidy bill is rising because of the West Asia war, and large social sector programmes need money. A tax cut would have to fit within these spending needs.
What's next
Any change would most likely come in the next Union Budget, usually presented on 1 February.
What it means for you
If you invest in shares or equity mutual funds, a lower LTCG rate or STT would leave more of your profit in your hands.
Key numbers
- $924 bn: Market value lost since Sept 2024 peak
- ₹1.3 lakh cr: LTCG tax collected in FY25
- 12.5%: Current LTCG rate on listed shares
Both sides
- Market participants: Easing these taxes would shore up markets and attract foreign capital back.
- Fiscal planners: Subsidies and welfare need money, so any relief must be weighed against lost revenue.
Key terms explained
- Long-term capital gains
- Profit on an asset held for a long period; for listed shares, over a year.
- Securities transaction tax
- A small tax charged on every purchase or sale of shares on a stock exchange.
The story so far
- 2004: Securities transaction tax (STT) introduced. The Finance Act, 2004 brought in STT, a small tax on buying and selling shares on stock exchanges, while long-term gains on listed shares were made tax-free.
- 2018: LTCG tax on listed shares returns at 10%. Budget 2018 reintroduced a 10% tax on long-term capital gains from listed shares above ₹1 lakh a year.
- Jul 2024: LTCG raised to 12.5%; exemption to ₹1.25 lakh. The July 2024 Budget raised the LTCG rate on listed shares to 12.5% and the yearly exemption to ₹1.25 lakh. It also raised STT on futures and options from October 2024.
- Today: Government reviews LTCG and STT
Exam notes (UPSC, SSC, Banking, PSC)
- Capital gains are profits from selling an asset such as shares or property for more than its cost.
- Long-term capital gains on listed shares apply when they are held for more than 12 months.
- Securities transaction tax was introduced by the Finance Act, 2004.
- Article 112 of the Constitution requires the Annual Financial Statement (the Union Budget) to be laid before Parliament.
Likely exam question: Differentiate between long-term capital gains tax and securities transaction tax. Why might a government consider easing them?