At the time of festival, the government will give a big gift to stock markets. The Prime Minister's Office (PMO) and the Finance Ministry are working on several measures like abolishing dividend distribution tax. In addition, the existing tax slabs and long-term capital gains (LTCG), short-term capital gains (STCG) period and securities transfer tax (STT) are being tested.
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The matter has also been heard by the Department of Economic Affairs (DEA) and the Department of Revenue in the Ministry of Finance along with the PMO. The government brought the LTCG again after more than a decade in the 2018 budget, with a provision of 10 percent tax on funds above Rs 1 lakh. The government may also consider this, in which tax liability can be eliminated after a particular holding period.
Short-term capital gains tax at the rate of 15% is levied on holding shares for less than one year. The list of capital assets in this category includes stocks whose shares, ETFs (exchange-traded funds) and equity-focused mutual funds. STT is charged on the purchase and sale of securities including shares. The market is trying to reduce STT or eliminate it.
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According to analysts, to overcome the shortcomings of DDT, the government had announced a 20% tax on share repurchases and this raised investor concerns. Finance Minister Nirmala Sitharaman announced this new provision in the General Budget this year.
Their purpose was to wave their flag at companies bringing share repurchase offers to avoid DDT. As per the list in the budget, more than 20% tax on share repurchase was proposed by the companies. This was also a major reason for the stock selling after the budget. Due to this, shares of repurchase plans of hundreds of companies were stuck and since then there has been no repurchase.
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