With preparations of the yearly Budget in the foreground, the ruling NDA is looking to offer fresh benefits to middle class taxpayers, seen as a key constituency of BJP. While discussions on a possible package are in the works, a group wants the government to ensure the vocal segment is rewarded although the fiscal costs will be weighed. Other options debated on are an increase in the tax exemption limit, a return of standard deduction in some form as well as additional benefits for health insurance and even bank fixed deposits, which have become less attractive following the recent surge in stock markets coupled with sops for investment in mutual funds.
A source said that a section within the government is backing the re-introduction of long term capital gains tax on stock market transactions with riders that it will apply to new transactions above a certain value of say Rs 5,00,000. A source said, “It will impact 5,000 investors but will benefit 50 million families.” During a meeting with the finance ministry brass, the Bombay Stock Exchange had suggested the introduction of long term capital gains tax, arguing it will end friction in the market and also tackle the problem of manipulation in penny stocks. Sources, however, said BSE had made this suggestion in the past too. Several market players believe that Securities Transaction Tax has also lost its utility and long-term capital gains tax makes sense now.
Abhishek Goenka, direct tax partner at consulting firm PriceWaterHouseCoopers said, “The debate on whether the capital gains exemption on listed shares should be removed comes up before every budget as it's one of the options available with the government to mobilise revenues. To some extent, with the amendments to the tax treaties in 2017, it is now only the long-term capital gains that are exempt and more so with the changes and limitations introduced in the Budget 2017, much of the misuse of this exemption has been plugged.”
He added, “Looked at from a perspective of incentivising investment and creation of capital, both private and listed shares should be treated alike. There is a large amount of domestic savings as well as private and international capital going into the creation of capital through private companies and it will augur well if a calibrated approach of providing some relief to such shares is also considered.”
The “tax package”, sources said, will be a political call that will be taken by Prime Minister Narendra Modi after detailed deliberations with finance minister Arun Jaitley. If the government moves ahead, an increase in the exemption limit will be calibrated in a way that it does not leave the government short of resources for flagship programmes or to bolster public investment.