Keeping long term capital gains (LTCG) untaxed was proving to be a "disincentive" for the manufacturing sector and it has been taxed in the Budget to create balance in the taxation system, the CBDT Chairman said today.
Sushil Chandra, the CBDT chief, said all "benefits" of the LTCG obtained by an investor till yesterday (January 31) will not be touched by the tax department as they have been grandfathered, as announced by Finance Minister Arun Jaitley in the budget.
"This (LTCG) was tax free for last one-and-a-half decade and it was creating a bias against the manufacturing (sector). Why some corporate should involve themselves into manufacturing when the returns are less...
"They (investors) were trying to put investments in the stocks and get tax-free income. There was no incentive to go to manufacturing rather it was creating a disincentive for manufacturing. Therefore, there was need to have a balance in the taxation system," Chandra told PTI.
He quoted the finance minister's budget speech to say that Rs 3,67,000 crore of LTCG funds was left untaxed last year.
Hence, Chandra said, it was required to rationalise the tax on LTCG.
"We have not touched the earlier regime (till January 31). Whatever profits you have gained in LTCG, that is tax- free. Only whatever gain will arise from February 1, will be subjected to tax," he said.
The government, in the budget today, introduced long-term capital gains (LTCG) tax of 10 per cent on stock market gains exceeding Rs 1 lakh.
The Central Board of Direct Taxes (CBDT) is the policy- making body of the Income Tax Department.
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