Prominent Indian stock market investor Vijay Kedia has made a strong plea for the complete removal of Long Term Capital Gains (LTCG) tax on equity investments. Kedia contends that such a reform would not only invigorate the nation's capital markets but also lead to a net increase in government revenue through other tax streams.
Kedia's Vision for Market Growth
Kedia's proposal centers on the idea that eliminating the LTCG tax would encourage greater participation from both domestic and foreign investors. He believes this would foster a more robust culture of long-term investing, as individuals would no longer face a direct levy on profits held over a year.
Currently, India imposes a 10% LTCG tax on equity gains exceeding ₹1 lakh (approximately $1,200 USD) in a financial year, provided the investments are held for more than 12 months. This tax was reintroduced in 2018 after being abolished in 2004.
The Argument for Increased Tax Revenue
Contrary to common assumptions, Kedia argues that abolishing LTCG tax would not necessarily lead to a loss of government income. Instead, he suggests that the resulting surge in market activity would boost collections from other taxes. These include the Securities Transaction Tax (STT), dividend distribution tax, and an increase in corporate tax revenues as businesses benefit from a more vibrant economy and easier access to capital.
He highlights that increased investor confidence and liquidity could lead to higher valuations and more successful public offerings, thereby creating a positive feedback loop for economic growth and tax generation.
Implications for Investors and the Economy
For individual investors, the removal of LTCG tax would simplify tax planning and potentially increase net returns, making equity investments more attractive compared to other asset classes. For the broader economy, a more active and liquid stock market could facilitate capital formation, support business expansion, and ultimately contribute to job creation.
While Kedia's call has sparked debate among economists and policymakers, it underscores a persistent discussion about the optimal tax structure for promoting capital market development in India.