Short-term capital gains tax rate may rise in Budget 2017

Long-term capital gains are currently tax-free, Jaitley ruled out any possibility of changes in it

The government may hike the short-term capital gains (STCG) tax rate, and also a higher levy on dividends earned by individuals.

The STCG (profits on sale of shares held for less than 12 months) tax rate is 15%; the government is planning to increase it to 20%, according to sources in the know. The Centre has already started gathering feedback from key market participants.

Long-term capital gains are currently tax-free and Arun Jaitley ruled out any possibility of changes in it. 

On Saturday, Prime Minister Narendra Modi, at a Sebi event in Mumbai, had said, “Those who profit from financial markets must make a fair contribution to nation-building through taxes. For various reasons, the contribution of tax from those who make money on the markets has been low.”  

Currently, besides the dividend distribution tax (DDT) paid by the companies, an additional 10% is levied on individuals earning dividend income in excess of Rs 10 lakh annually. The move could increase the effective tax on dividends to 30% for those in the high-income bracket.

If STCG is increased it will be a blow for the investors, as they are currently paying securities transaction tax (STT) on all trades. Currently, the government collects around Rs 7,400 crore annually through STT.

Market players said the taxes on dividends are already high and a further increase could impact dividends payouts.