Data analysis on the impact of LTCG, showed that during 2018-19, around 91,000 individuals and Hindu Undivided Families (HUFs), or 16%, dealing in listed shares and mutual funds who sold listed shares or mutual funds exceeding Rs 20 lakh did not file returns. The value of sales of these shares and mutual fund units was estimated at Rs 99,000 crore.
Another 2.5 lakh individuals and HUFs, or 44% of the population that sold shares or MF units, reported either zero or substantially reduced value in their income tax returns although the transactions added up to over Rs 4 lakh crore. The government is yet to decide the future course of action against these entities.
“This perhaps explains why there is a demand for abolition of LTCG and Securities Transaction Tax (STT) so that profits earned by people through shares etc. are not included in their income… If LTCG is abolished, it will open a major loophole for tax avoidance,” said an officer.
Government sources said the tax also helps track investors who would have otherwise gone unnoticed in case they do not pay income tax. Many of the transactions in penny stocks or those involving black money can be tracked through this route, officials argued.
“It is a standard tax all over the world for decades with almost 95%, including the US, Canada, Australia, China and several European countries levying it,” said an official, while pointing out that the tax ranges between 10% and 35 % on the profits earned from the sale of shares or mutual fund units.
The sources said demands for withdrawing a levy that was introduced two years ago were not in line with suggestions for consistency and continuity in the tax policy.
Starting April, 2018 sale of shares and equity-oriented mutual funds, held for one year or more, began attracting 10% LTCG (plus cess) if the gain in a year was over Rs 1 lakh.