Budget 2020: Govt May Remove LTCG Tax On 2-Year Equity Holdings

Following the much criticism received on the re-introduction of the tax and looking for means to attract more long-term foreign investment, the government is now seeking advice from tax experts on removing the LTCG (long-term capital gains) tax on equities in the upcoming Budget 2020, according to an Economic Times report.

The report further states that the definition of "long-term" on equities may be changed from one year to two years.

In the Union Budget 2018, led by former Finance Minister Arun Jaitley, LTCG on equities was reintroduced after 14 years, disrupting the markets. At present, tax at the rate of 10 percent is levied on gains made above Rs 1 lakh (in a year) on equities held for more than one year.

In September 2019, Prime Minister Narendra Modi at his speech in New York said that his government was working on "bringing tax on equity investments in line with global standards," which experts say could mean the removal of LCTG tax on equities like many key countries around the world.

According to the ET report citing sources, the government had hoped to make anywhere close to Rs 40,000 crore annually after the re-introduction of LTCG tax but collections weren't close.

The tax also makes large investments a tough sell as most developed nations that India competes with for capital have tax free LTCG on equities. According to ET's sources, several FPIs (Foreign Portfolio Investors) had also reached out to the government seeking the removal of the tax.