No News on Capital Gains Tax Is Good News for Markets

New Delhi, Feb 1 (IANS) Stock markets cheered the Union Budget 2023-24, as among other reasons, there were no changes in the treatment of capital gains tax.

Suresh Surana, Founder, RSM India, said the widespread apprehension of enhancement of capital gains tax or new taxes to meet additional outlay has also been addressed with no changes in this respect.

The corporate tax regime is already very attractive with effective tax rates of 25.17 per cent, and even a lower tax rate of 17.16 per cent for new manufacturing companies. The possible areas for further improvement are the extension of period for commencement of manufacture for availing the lower tax rate and reduction of tax on dividends to a maximum of 20 per cent, Surana said

Morgan Stanley said in a report that the sharp increase in capital spending in a year of global uncertainty, credible fiscal consolidation, no change in capital gains tax regime for equities, lower-than-expected market borrowings, and a likely shift in the RBI stance augur well for stocks. This Budget probably means the consensus may need to raise earnings estimates.

S. Ranganathan, Head of Research at LKP Securities, said the Budget leaving taxation on capital gains untouched is a big positive.

Kunal Savani, Partner, Cyril Amarchand Mangaldas, said the leitmotif in the numerous representations made by various stakeholder in the run up to the Budget 2023, was the need for rationalisation of the extant capital gains tax regime to remove disparities therein and thereby simplifying it.

Stakeholders across sectors had expressed concerns over the varied tax treatments meted out under capital tax regime, depending on period of holding, nature of asset, manner of disposal, residential status of the taxpayer, the legal status of the taxpayer etc. Unfortunately, these expectations and representations have failed to find a place in the Budget 2023.

On the contrary, the Budget proposes to introduce a separate tax regime for tax taxation of capital gains arising in case of 'market linked debentures'. Further, the exemptions available to taxpayers on re-investment of capital gains in residential property have also been proposed to be capped, Savani said.