Govt may scrap DDT, review LTCG, STCG, STT slab

A bonanza is in the offing for the stock markets as the Prime Minister's Office (PMO) and the Finance Ministry are working on measures which may include dividend distribution tax (DDT) to be scrapped and a review of existing slabs and holding period of long term capital gains (LTCG), short term capital gains (STCG) and securities transaction tax (STT).

Officials of Department of Economic Affairs (DEA) and Revenue Department in the Finance Ministry have held meetings in this regard with the Prime Minister's Office.

The LTCG was introduced in the 2018 Budget after more than a decade with a tax of 10 per cent on an amount above Rs 1 lakh. There may be a review under which after a particular holding period, the tax may be done away with.

Short term capital gains are taxed at 15% of total gains for equity holdings less than a year. Capital assets in this category include listed equity shares, ETF (exchange traded fund) and equity-oriented mutual funds.

The STT is charged on buy and sale of securities instruments, including equity. The markets have been demanding reduction of the STT or doing away with it altogether. However, it is a big money spinner for the government, and it also helps to track equity buying at source and was introduced in 2004 after abolishing capital gains.

According to analysts, the announcement related to buyback attracting 20% tax to close the loophole on ADDT had made investors jittery. Also, no booster shot for LTCG, STCG and STT had left the stock markets disappointed. The provision on buybacks was a new one, introduced in this year's Union Budget by Finance Minister Nirmala Sitharaman. The motive was to clamp down on the strategy of avoiding dividend distribution tax (DDT) through buyback of shares by listed companies.