BJP pitches for LTCG, STCG & DDT tweaks

■ Party says financial transactions moving out of India

The Bharatiya Janata Party has recommended adjusting rules on taxing equity market returns in the upcoming budget on February 1, which if accepted, could attract more capital inflows into the stock markets, a senior party leader said.

Financial market participants have been lobbying for scrapping long-term capital gains tax (LTCG) on investment in equity or equity-oriented funds or extending the holding period from the current one year to two years with nil tax.

India charges 15 per cent short-term capital gains tax if equity shares are sold within a year and at 10 per cent if sold after a year.

Another demand has been for an amendment to dividend distribution tax (DDT) rules.

In pre-budget consultations with the finance minister and the prime minister’s office, BJP leaders have urged the government to consider industry demands and listed measures to revive investments, Gopal Krishna Agarwal, economic affairs spokesman of the BJP, told Reuters in an interview.

“There is a concern on LTCG and DDT...as a lot of financial transactions are moving out of the country to Singapore, Hong Kong and London,” Agarwal said.

The long-term capital gain tax of 10 per cent on the sale of equity shares was re-introduced in 2018 by former finance minister Arun Jaitley after a gap of 14 years, much to the disappointment of market participants.

Agarwal said there was a need to reduce the cost of financial transactions in the country.

“These are doable and without putting much financial burden on the government”.

Currently, Indian companies pay over 15 per cent dividend distribution tax on declared dividends and investors pay another 10 per cent tax on receiving more than Rs 10 lakh dividend in a financial year.

Many tax experts said these rules do not allow foreign investors to claim tax credit in their countries and small investors are forced to pay higher tax.