No long-term capital gains tax in Budget: Arun Jaitley

New Delhi: Finance minister Arun Jaitley on Sunday denied that there was any move to increase taxes on profits from share trading by imposing long term capital gains tax on them in the forthcoming Union Budget.

According to analysts, Mr Jaitley’s clarification appears to be aimed at preempting equity markets from reacting negatively to media reports suggesting a hike in capital gains tax on shares.

A section of media had reported that Prime Minister Narendra Modi during his speech in Mumbai on Saturday observed that contribution of tax from those who make money in the markets has been low and the government “should consider methods for increasing it in a fair, efficient and transparent way”.

Markets are already jittery after demonetisation and any move to bring long term capital gains tax on shares may have led to panic.

“The speech has been misinterpreted in some sections of the media which have started speculating that this is an indirect reference to the fact that there could be long-term capital gains (tax) on securities transactions,” Mr Jaitley said on the sidelines of Digi Dhan Mela.

“Now, this interpretation is absolutely erroneous, the Prime Minister has made no such statement directly or indirectly... And therefore I wish to absolutely clarify that there is no occasion or opportunity for anybody to reach such a conclusion because this is not what the Prime Minister said, nor is the intention of the government as has been reported,” he added.

Currently, there is no long-term capital gains tax on sale of shares traded on stock markets, if held for more than one year. Meanwhile, short-term capital gains (STCG), profits on sale of shares held for less than 12 months, are taxed at a flat rate of 15 per cent.

All stock market transactions currently also attract securities transaction tax (STT) in a range between 0.017 per cent and 0.125 per cent.

Earlier, the Modi government  had increased the holding period for debt mutual funds from one year to three years to avail long-term capital gains benefit of zero tax.

Mr Jaitley said that effort is being made to reduce the usage of cash in the economy by replacing it with digital currency.

“Common people are getting to understand (the benefits of digital currency), but there are certain sections who take time to understand and some of our political friends also take time to understand this,” he said.

It is in the interest of every country that it becomes less-cash economy and a lot has been written about this, Mr Jaitley said.

He said that the higher tax buoyancy leads to lower deficit so that allocation towards rural infrastructure and defence can be increased. He said that one of the evils of the cash economy is the low revenue realisation of the government and higher deficit.

The current budget size is Rs 20 lakh crore and the government’s revenue from both direct and indirect taxes is Rs 16 lakh crore, leaving a gap of about Rs 4 lakh crore.