Rakesh Jhunjhunwala calls LTCG reasonable; Shankar Sharma terms it 'bad idea'

LTCG used to be tax free until Finance Minister Arun Jaitley announced on Budget day that gains over Rs 1 lakh will be taxed at 10 per cent, that too without the benefit of indexation i.e. long-term gains wouldn't factor in the inflation.

Rakesh Jhunjhunwala (left) & Shankar Sharma (right)

Rakesh Jhunjhunwala vs Shankar Sharma: The big bull and the big bear on Dalal Street, of course, cannot see eye to eye. And this time it is about the reintroduction of the long-term capital gains (LTCG) tax. While Rakesh Jhunjhunwala, the big bull, believes LTCG tax is reasonable, Shankar Sharma, the big bear, said it is a bad idea.

"We have to pay what the government desires and for me 10 per cent rate of tax is reasonable; it is not something out of the wood. I do not think that flow of money to equity will stop because of that but I thought that the timing was wrong," said Jhunjhunwala of Rare Enterprises in an interview with ET Now.

"I think the government will not be able to realise even Rs 5,000 crore or Rs 3,000 crore of capital gains tax because investors will have to first gain from the prices as on January 31, and then they will pay tax," he added.

Jhunjhunwala believes LTCG tax could have been delayed by a year or two.

Meanwhile, Shankar Sharma of First Global, tweeted LTCG tax has reduced the benefit equities enjoyed over fixed deposits (FDs).

"CAGR since start of 2014:-- Sensex 12.90%. Now one should understand why imposition of LTCG is a bad idea: Post tax, returns come down to around 11.5%. Add Volatility. Reduces equity attractiveness vs FDs massively," Sharma tweeted on Tuesday.

CAGR since start of 2014:-- Sensex 12.90%. Now one should understand why imposition of LTCG is a bad idea: Post tax, returns come down to around 11.5%. Add Volatility. Reduces equity attractiveness vs FDs massively.

— Shankar Sharma (@1shankarsharma) February 27, 2018

What is LTCG tax?

The profit that one incurs on investment held for over a year qualify as long-term capital gains. The rate at which these gains are taxed is called the LTCG tax, the reintroduction of which in Budget 2018 had shocked the market participants.

LTCG used to be tax free until Finance Minister Arun Jaitley announced on Budget day that gains over Rs 1 lakh will be taxed at 10 per cent, that too without the benefit of indexation i.e. long-term gains wouldn't factor in the inflation.

To be sure, LTCG has not been tax free forever. Finance Minister P Chidambaram had abolished this tax in 2005 and had instead brought Security Transaction Tax (STT) to make up for the loss in revenues.

Before 2005, LTCG used to be taxed at 20 per cent, but with the benefit of indexation. There was also an option of paying a flat long-term capital gains tax of 10 per cent. Investors could have chosen either option that suited them more.

TAGS: