New Delhi - There will be a significant impact on equity returns as the benefit of indexation is withdrawn under the re-introduced tax on Long Term Capital Gains (LTCG).
In an interview to BTVI, Riaz Thingna, Director, Grant Thornton Advisory said: "We have always had the adjustment of cost with the inflation index. Now that will no longer be available and therefore the capital gains will be calculated based on the total gains, i.e. the sale price minus the cost of acquisition or the cost as on 31st January."
As per a statement issued by the Central Board of Direct Taxes on Sunday: "It is clarified that the benefit of inflation indexation of the cost of acquisition would not be available for computing long-term capital gains under the new tax regime."
On February 1, Finance Minister Arun Jaitley proposed to tax LTCG on equities exceeding Rs 1 lakh at 10 per cent, which is expected to bring in a revenue of Rs 20,000 crore.
However, capital gains made on shares until January 31, 2018, will be "grandfathered" and those holding them up to one year will remain taxed at the rate of 15%.
"The return on investment in equity is already quite attractive even without tax exemption. There is therefore a strong case for bringing long term capital gains from listed equities in the tax net," Jaitley said in his Budget speech.
"However, recognising the fact that vibrant equity market is essential for economic growth, I propose only a modest change in the present regime. I propose to tax such long term capital gains exceeding Rs 1 lakh at the rate of 10% without allowing the benefit of any indexation."