DNA Money Edit: Stock markets demand STT removal

Stock markets are still whining over the re-introduction of long-term capital gains (LTCG) tax on stock market gains, and Sensex has shed another 310 points on Monday. India’s market cap is down by Rs 5.25 lakh crore since January 31, with many investors staring at mark-to-market losses on their investments. Markets still believe that the co-existence of LTCG and securities transaction tax (STT) is unfair since the latter was introduced in lieu of LTCG.

So starting April 1, the government will start levying a 10% tax on LTCG made on shares held for more than a year, up from nil tax at present. The new tax will also be levied on secondary share sales through IPOs, block deals or those tendered in buybacks.

The LTCG has been a low-hanging fruit for the government. Some back-of-the-envelope calculations show that the government would have made a windfall had the LTCG tax been introduced in last Budget. The sharp market rally and a record mobilisation of funds through IPOs during the last fiscal could have resulted into a huge gain of Rs 40,000 crore. Now that the government has brought back LTCG, India Inc may be seriously looking at consolidations and demergers before March 31 so that they could escape this tax.