New Delhi, Feb 1: Be ready for a big budget shock. PM Narendra Modi, it seems, has decided to tax your mutual fund profits. Not just funds, your profits from sale of shares too may be taxed heavily. The government is looking at means to riase revenues to fund the welfare schemes, on one such means is Long Term Capital Gains tax.
At present, deals on stock exchanges face Securities transaction tax (STT) irrespective of the time you have held the shares. Mutual Funds on the other hand face no such tax. However, the profits on funds are taxed at the rate of 15% only if they are sold withing 12 months of buying. It the long term capital gains is introduced then the profit on sale of funds may be taxed at the rate of, say, 10% if funds are sold after 12 months. This will be a big setback to middle class invetsors who have invested heavily in mutual funds of late. On the other hand, government may increase the lock-in period for long tern capital gains tax from present 12 months to 24 months and may then tax the profit at 5%. Reintroduction of long term capital gains tax may trigger a major fall in stock market.
However, to limit the negative fallout of LTCG, the government may fix a limit of profit which may trigger LTCG. For example, LTCG may apply if the profit from sale of shares or funds may exceed Rs 1 lakh.