3.4 Lakh escape the tax on capital gains, MF sales

3.4 Lakh escape the tax on capital gains, MF sales

More than 3.4 lakh holders trading in classified equity shares and mutual funds are accused of evading or not disclosing long-term capital gains tax, an estimate by the income tax department revealed, leading officials to ignore demands for elimination of the levy introduced two years ago.

Data analysis on the impact of LTCG showed that in 2018-19, around 91,000 individuals and Hindu Undivided Families (HUFs), or 16 percent, did not file returns on listed shares and mutual funds that sold listed shares or mutual funds exceeding Rs 20 lakh. The selling value of these shares and units of the mutual fund was valued at 99,000 crore rs.

About 2.5 lakh individuals and HUFs, or 44 percent of the population who sold shares or MF units, reported either zero or significantly reduced interest in their income tax returns although the sales added up to more than Rs 4 lakh crore. The government has yet to decide the course of action to be taken against these bodies. This may explain why there is a desire for the elimination of LTCG and Securities Transaction Tax (STT) so that people’s earnings from shares etc. are not included in their taxes … When LTCG is eliminated, it will open up a major backdoor for tax avoidance, “an officer stated.

Government sources have said the tax also helps trace shareholders who would otherwise have gone unnoticed if they don’t pay income tax. Many of the penny stock transactions or those involving black money can be traced along this path, officials argued

“For decades, it has been a normal tax globally of approximately 95 percent, including the United States, Canada, Australia, China and several European countries levying it,” said the official, while pointing out the tax varies from 10 percent to 35 percent on profits from the sale of shares or mutual fund units.

The sources said demands for removal of a levy imposed two years ago were not in line with tax policy recommendations for stability and continuity.

Starting in April 2018, the selling of shares and equity-oriented mutual funds, held for one year or more, began to receive 10 percent LTCG (plus cessation) if a year’s benefit reached Rs 1 lakh.

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