Stocks – Tax experts believe investors can gain if holding period for long-term capital gains (LTCG) exemption is increased to three years from the present one year since it would provide an impetus for building a stable equity portfolio and give a longer window for adjusting stock losses if any, besides reducing holding costs.
The Finance Ministry is understood to be considering increasing the holding period of stocks for long-term capital gains (LTCG) exemption from the current one year to three years.
This, in effect, would mean if you sell the stocks in your portfolio within three years of purchase you would be liable to pay short-term capital gains tax of 15 percent should you be sitting on profit from your investment. The exemption window for nil LTCG at present is one year. Thus, if an investor holds a stock for one year, it will not attract any capital gains tax if sold.
On the face of it, the move will look negative for investors since the tax incidence on such investments would remain for a much longer duration. But could an increase in the holding period for availing LTCG exemption be seen as a benefit by the investing community?
Tax experts believe investors can gain if the holding period is increased to three years as proposed since it would provide an impetus for building a stable equity portfolio and would give a longer window for adjusting stock losses if any and reduce holding costs.
Equity Shares Holding Period
“If the holding period of equity shares is increased, it will act as an impetus for investors to stay committed for the longer term. Investors who stay invested for the long term (for at least 3 years going up to 5-7 years) can truly benefit from gains of investing in equity. This change in the time period for long term tax on equity gains should not worry investors who are in for the long haul, they should take this as an opportunity to make a wise investment and sit back to see their investments grow,” Archit Gupta, CEO, and Founder, ClearTax.com told Moneycontrol.
Sudhir Kaushik, Co-founder, and CFO, Taxspanner.com, advises investors to ignore short-term tax changes and look for long-term portfolio returns. “Equity investments should be made on a regular basis, preferably through SIPs over a long term. Investors should stay invested till they actually need money and ignore small tax changes. The sale of stocks should be based on your financial need ideally. Otherwise, one should stay invested and defer taxes if possible. The move would force investors to avoid frequent sale/purchase and hence will bring down the cost of investments in the long term,” he said.
Kaushik said that investors would also likely benefit from a longer window for booking losses on equities. “Investors will also have more time to book losses and carry forward or adjust with taxable capital gain. Currently, one need to book losses within a year for adjusting against the taxable gain,” he said.
Cleartax’s Gupta agrees. “If the change takes place those holding for the short term will now have a longer period of time to plan short-term losses set off from short-term gains,” he said.
(As Published in MoneyControl.com on Jan 17, 2017)