Govt may tweak tax norms to boost investor sentiment

The government, in a bid to boost the investor sentiment, is 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).

Sources in the know told DH that the official from the Department of Economic Affairs (DEA) and Revenue Department in the Finance Ministry have been holding meetings in this regard with the Prime Minister’s Office (PMO).

“LTCG, STT and DTT are under review. Grandfathering backfired due to its impact on foreign capital. We may take that back, but not entire LTCG. The slabs can also be changed,” a source in the know said.

Grandfathering is a legal provision. It means that LTCG made till January 31 will not be affected. Only the gains made after that date will be taxed.

The government may decide to tweak the Rs 1 lakh slab in the LTCG, that was introduced in last year after more than a decade with a tax of 10%. The tax is applicable on an amount above Rs 1 lakh.

On the other hand, 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 and equity-oriented mutual funds.

The government may also scrap the provision of taxing on buybacks introduced in this year’s 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. The Budget had proposed an additional tax of 20% in case of buyback of shares by listed companies.

Many companies which were planning buybacks were stuck in the middle of the new tax and since then there has been a lull for new buybacks.

The government had, in September, withdrawn the surcharge on the high networth individuals -- the move that was introduced in the July budget and led to a flight of foreign capital from the Indian equity markets. The Centre had also announced cut in the corporate tax rates for India Inc.