New LTCG tax aimed at encouraging investors to hold on to equities for long: Revenue secy

Revenue Secretary Sanjay Malhotra on Wednesday said the idea behind changes in the capital gains tax on investments in listed equities is to encourage retail investors to hold on to their investments for a longer period of time.

The 2024-25 Budget has hiked short-term capital gains tax (STCG) on listed equity, equity-oriented mutual funds, and units of a business trust to 20%, from 15%.

Long-term capital gains (LTCG) tax on these securities, too, has been hiked to 12.5% from 10%. LTCG up to Rs 1.25 lakh annually will be exempt from tax, up from Rs 1 lakh previously. Equities held for more than one year is considered as long term.

Malhotra further said the proposal will not hurt small investors holding onto shares for over one year as the LTCG exemption limit has been hiked in the Budget.

"We would encourage people to hold on to these shares for longer period of time because that is investment. Second, this increase impinges mostly on the higher incomes, not on the middle and lower income class category. The benefit of Rs 1.25 lakh exemption for LTCG helps middle and low-income categories," Malhotra told PTI.

He further said the hike in securities transaction tax (STT) on futures and options (F&O) will send a message to retail investors to stay away from such speculative trades.

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"While we do believe that this will not fully curb this speculative instinct, but this is still a message to retail investors to stay away from F&Os as some study by Sebi shows 9 out of 10 investors in F&O actually lose money.

"So it's more of a signal to them. More, of course, we believe needs to be done if this is to be curbed.

Taxation is only one measure and will have only that minimal impact perhaps on this trading," Malhotra said.

STT on the sale of an option in securities has been hiked from 0.0625% to 0.1% of the option premium in the FY25 Budget, and on sale of a futures from 0.0125% to 0.02% of the price, at which such futures are traded.