Just a month before presenting the next Union Budget, Prime Minister Narendra Modi hinted at a move that may spook domestic stock markets when they open for trade on Monday. He said gains from financial markets have been taxed low so far for unknown reasons and hence could attract higher taxes in the coming budget.
"Those who profit from financial markets must make a fair contribution to nation-building through taxes. For various reasons, the contribution of tax from those who make money on the markets has been low," the prime minister said during his speech at an event organised by the Securities and Exchange Board of India (Sebi).
Taxes On Capital Gains in Effect Today
- On investments for which holding period in less than 12 months – 15%
- For investments where holding period is longer than 12 months (365 days) – Nil
(These taxes are excluding securities transaction tax, stamp duty, Sebi turnover fee and service tax on brokerage.)
As is obvious, an investment of Rs 1 crore, if held for more than a year and assuming a return of, say, 20 percent, will turn out to be non-taxable Rs 20 lakh in gains from the stock markets. However, in the normal course, someone with Rs 20 lakh in earnings will end up paying approximately Rs 5 lakh in income taxes – and this has probably got Modi's attention.
Meanwhile, while addressing a gathering of some of the top ministers of the Maharashtra government, Finance Minister Arun Jaitley, Sebi chairman UK Sinha and others, PM Modi also promised more prudent policies which would not be aimed at "short-term political point scoring" but will be meant for "larger national interests."
"Let me make one thing very clear: This government will continue to follow a sound and prudent economic policies, to ensure that we have a bright future in the long-run. We'll not take decisions for short-term political point-scoring. We'll not shy away from taking difficult decisions if those decisions are in the interest of the country," Press Trust of India quoted Modi's as saying.
Talking about demonetisation, Modi said the decision of cancelling as much as 85 percent worth of currency in circulation has been a "difficult" decision. "Demonetisation has brought about short-term pains, but it will bring in long-term gains," he added.
In terms of capital markets, Modi was of the view that those who benefit from financial markets must make a fair contribution to nation-building through taxes. He aims to increase taxes in a fair, efficient and transparent way.
"... now it is time to re-think and come up with a good design which is simple and transparent, but also fair and progressive," PTI quoted Modi's statement as saying. The financial markets play an important role in an economy by mobilising saving, which can later be directed towards productive investments.
Additionally, he further said, "The true measure of success is the impact in villages, not the impact in Dalal Steet or Lutyens Delhi. By that yardstick, we have a long way to go. Our stock markets need to raise capital in innovation ways for projects in agriculture. Our commodity markets must become useful to our farmers, not just avenues for speculation. People say that derivatives can be used by farmers for reducing their risks," PTI added.
