As the sensex declines, the government promises there will be no changes made to the capital gains tax

According to a news article, concerns that stock market gains will result in increased taxes momentarily roiled D-Street on Tuesday.
Minutes after a Bloomberg story stated that the government may raise the long-term capital gains tax, the sensex fell by roughly 250 points at around 1:30 in the afternoon. However, the index reversed some of its losses after it was claimed that the finance minister was rejecting such ideas. Analysts said that the market movement in the late afternoon was a hasty response to an unverified allegation.

The sensex, which saw profit-booking for the second straight day, ended Tuesday’s trading session 0. 3% down at 59,727 points. Even though IT stocks rose following a day of intense selling, the sensex was most negatively impacted by Reliance, the HDFC twins, and ICICI Bank. According to Bloomberg, “India is preparing to overhaul its direct tax laws to replace a byzantine matrix of rules,” with “potential increases in capital gains taxes for top income earners at the core of the rework.” The study further stated that should the current administration remain in power in 2024, suggestions relating to direct taxes that were submitted to the Centre in 2019 will be put into effect.

In an effort to eliminate tax arbitrage opportunities for affluent Indians, the government last month stopped offering tax incentives for investments in long-term debt mutual funds. Investments in debt mutual funds are now taxed based on the income tax bracket of the investor as of April 1.

According to analysts, the government would eventually try to standardise capital gains taxes across all assets. A consistent system will be difficult to establish, though. Currently, stock gains that are long-term (kept for more than a year) are taxed at 10%, while short-term profits are taxed at 15%. For other assets, the rates change.

It isn’t anything new. According to Gautam Baid, managing partner of Stellar Wealth Partners India Fund, “This administration would eventually eliminate LTCG & STCG on listed stocks and tax all capital gains on sale of listed shares according to one’s personal income tax band, irrespective of the holding term.

Even though the I-T department has rejected such ideas, Kranthi Bathini, director of equities strategy at WealthMills Securities, stated that uniform capital gain taxes can ultimately be anticipated.

Reports of a higher capital gain tax have previously frightened the market.

When discussing the need for equity investors to contribute to nation-building, Prime Minister Narendra Modi intimated in December 2016 that there may be greater taxes on stock market revenue. The government has no plans to levy tax on long-term capital gains from share transactions, according to a statement made by the FM at the time, Arun Jaitley, the very following day. Jaitley did, however, eventually state in his address for the 2018–19 Budget that long-term capital gains exceeding Rs 1 lakh will be taxed at 10% without the advantage of indexation.