Chris Wood, a global equity strategist at Jefferies, believes that potential changes in the capital gains tax regime for stock market transactions pose a more significant risk to Indian markets than the outcome of the upcoming elections. In his weekly note, ‘Greed & Fear,’ Wood said that a repeat of the BJP-led NDA’s shocking defeat in 2004 is highly unlikely this time around.He said it is “unlikely in the extreme” this time.
However, he cautioned that modifications to the capital gains taxation could be announced in the Union Budget in July, following the general elections. According to an ET report, Wood highlighted that domestic fund managers are currently discussing the possibility of increased capital gains tax rates or an extension of the period required to qualify for long-term gains, or a combination of both.
At present, investors must pay a 15% short-term capital gains tax if profits from stocks and equity-oriented mutual funds are realized within one year of holding. Long-term capital gains, which are profits booked after holding for more than a year, are taxed at 10%.
Another proposal under consideration is to increase capital gains tax for retail investors while exempting those investing in mutual funds, he said.
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Wood expressed his preference for extending the minimum holding period for levying the capital gains tax rather than raising the rates. He attributed the motivation behind these proposals to the growing evidence of retail speculation, particularly in the options market, which is unlikely to be viewed favorably by Prime Minister Modi or the BJP.
“Greed & fear’s probably correct assumption is that the Indian prime minister has a natural suspicion of those making money out of money, most particularly in a zero-sum game like options,” said Wood.
He emphasized that since his days as the Chief Minister of Gujarat, where he served for nearly 13 years, Modi has consistently focused on the physical manifestations of growth, with a particular emphasis on infrastructure construction.
However, he cautioned that modifications to the capital gains taxation could be announced in the Union Budget in July, following the general elections. According to an ET report, Wood highlighted that domestic fund managers are currently discussing the possibility of increased capital gains tax rates or an extension of the period required to qualify for long-term gains, or a combination of both.
At present, investors must pay a 15% short-term capital gains tax if profits from stocks and equity-oriented mutual funds are realized within one year of holding. Long-term capital gains, which are profits booked after holding for more than a year, are taxed at 10%.
Another proposal under consideration is to increase capital gains tax for retail investors while exempting those investing in mutual funds, he said.
Also Read | ‘On June 4, markets will…’: PM Modi’s big prediction for Sensex on Lok Sabha election results day
Wood expressed his preference for extending the minimum holding period for levying the capital gains tax rather than raising the rates. He attributed the motivation behind these proposals to the growing evidence of retail speculation, particularly in the options market, which is unlikely to be viewed favorably by Prime Minister Modi or the BJP.
“Greed & fear’s probably correct assumption is that the Indian prime minister has a natural suspicion of those making money out of money, most particularly in a zero-sum game like options,” said Wood.
He emphasized that since his days as the Chief Minister of Gujarat, where he served for nearly 13 years, Modi has consistently focused on the physical manifestations of growth, with a particular emphasis on infrastructure construction.