Veteran Indian investor Vijay Kedia has made a strong appeal to Finance Minister Nirmala Sitharaman and the Finance Ministry to abolish the long-term capital gains (LTCG) tax on listed equities. Kedia contends that such a reform is crucial to strengthen India's capital markets, improve long-term investment sentiment, and attract the 'patient risk capital' needed to build world-class enterprises.
The Case for Abolishing LTCG Tax
Kedia's primary argument is that long-term shareholders are not speculators but rather providers of essential patient capital. By investing in and holding businesses over extended periods, these individuals enable companies to expand, create jobs, innovate, and contribute significantly to India's overall economic growth. He believes that the current LTCG tax discourages this vital long-term commitment.
Encouraging Productive Investment
Beyond the direct impact on equity markets, Kedia suggested that tax policy should actively encourage Indian households to redirect their savings from passive assets, such as gold, into productive businesses. He highlighted that assets like gold often represent imported stores of value, whereas investments in domestic businesses generate jobs, tax revenues, and build national wealth. A revamped tax structure, free of LTCG, could incentivize this shift.
Government Revenue Already Substantial
Kedia also pointed out that governments already collect substantial revenues throughout a company's growth cycle. This includes corporate tax, Goods and Services Tax (GST), income tax from employees, customs duties, and numerous other levies. He argued that long-term capital gains are often the culmination of economic activities that have already generated significant tax contributions, making the additional LTCG an unnecessary burden on wealth creators.
Distinguishing Investment from Speculation
A core tenet of Kedia's argument is the clear distinction between long-term investing and short-term speculative trading. He emphasized that a long-term shareholder acts as a partner in wealth creation, not merely a participant in market transactions. Therefore, tax policy should reward and encourage sustained ownership of productive businesses, differentiating it from speculative activities.
Broader Market Concerns Echoed
Kedia's suggestions come amid growing concerns over India's capital markets, particularly with foreign institutional investors (FIIs) consistently withdrawing funds from Indian equities. His views resonate with those of other financial experts. Samir Arora, founder and chief investment officer of Helios Capital, had previously criticized capital gains taxation, especially for foreign investors, calling it a significant mistake that has soured market sentiment.
Arora noted that FIIs had experienced substantial outflows, citing issues like currency risks and the inability of foreign sovereign and pension funds to get tax set-offs in their home countries, making Indian capital gains taxation particularly onerous for them. The Union Budget in July 2024 had previously seen an increase in the LTCG tax rate on most assets to 12.5% from 10%.