As per a TOI report, as a handful of investors to the tune of 3.4 lakh have not come with clean hands by not reporting their long term capital gains on equity, it is highly likely that the sought LTCG tax exemption on equity gains shall not be allowed in the Union Budget 2020. This is drawn based on an analysis by the department of income tax.
Further as per the report, in the financial year 2018-19, 16% of the population that roughly equates to 91,000 individuals and HUFs who trade in listed equity as well as other equity mutual funds on their sales of more than Rs. 20 lakhs did not file income tax return. The estimates of the value of shares and mutual funds has been Rs. 99000 crore.
Another lot of 2.5 lakh individuals and HUFs who sold shares and MFs reported significantly lower value or almost zero LTCG in their return despite the sales added up to more than Rs. 4 lakh crore.
So, given the reluctance to reveal correct gains and hence pay tax on the same official hold the view that the tax enables the department to catch investors who would have otherwise gone unnoticed. Also, other transactions that entail black money or trade in penny stocks is also made known via the route.
"This perhaps explains why there is a demand for abolition of LTCG and Securities Transaction Tax (STT) so that profits earned by people through shares etc. are not included in their income... If LTCG is abolished, it will open a major loophole for tax avoidance," said a government official in a leading daily.
Also, almost 95% of the countries levy it on sale of equity or equity related funds, with tax charged at the rate of 10-35%.
In Budget 2018, the LTCG tax was reintroduced at the rate of 10% on sale of equity and equity mutual funds held for over a year, if the gains in that year are more than Rs. 1 lakh in a year with the grandfathering clause.