An employee, seen through reflections on a glass window, drinks a glass of Indian spiced chai tea as he looks at a computer monitor at a brokerage firm in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Parliamentary Panel Recommends Hike In LTCG Tax Exemption Limit To Rs 2 Lakh

The Parliamentary Committee on Finance recommended increasing the exemption limit for capital gains from listed equities to Rs 2 lakh to protect the interest of small investors.

It is necessary to make a distinction between investments of small or retail investors and bigger financial institutions, the panel said in a report tabled in Parliament today. “The proposal to tax long-term capital gains exceeding Rs 1 lakh at the rate of 10 percent without allowing the benefit of indexation may not serve the interests of small investors who are now venturing into the stock market for long-term investment,” the report added.

Union Budget 2018-19 had proposed to reintroduce a 10 percent tax on long term capital gains in excess of Rs 1 lakh. However, all gains up to Jan. 31, 2018 will be grandfathered, Finance Minister Arun Jaitley had said.

Revenue Secretary Hasmukh Adhia told the panel that investors earned Rs 3.67 lakh crore last year, and average return on equity in listed stocks rose about 14-15 percent from 2004.

PNB Fraud Probe

The committee asked the Department of Financial Services, under the Ministry of Finance, to institute a “comprehensive enquiry” into the Rs 12,700 crore fraud at Punjab National Bank, in addition to ongoing investigations. The department has been asked to probe systemic issues and the role of officials concerned at all levels within a month.

It noted that the banking sector may need further capital, in addition to the Rs 88,000 crore already announced, to meet higher provisioning requirements due to the transition to the new accounting standard Ind-AS, mounting stressed assets and implementation of Basel III norms.

‘Refrain From Ambitious Divestment Targets’

The panel said that the Rs 80,000-crore divestment target for the financial year 2018-19 lacks transparency as a break-up of components such as equity sale and strategic divestment has not been provided.

With the government “banking heavily on receipts from non-tax sources to mobilise resources”, the committee sought the specific road map to achieve this target.

To that end, it urged the government to refrain from targeting ambitious divestment receipts as such plans only lead to “laxity” in due diligence, the panel report said, citing the ongoing stake sale of state-run Hindustan Petroleum Corporation Ltd. to Oil and Natural Gas Corporation Ltd.

On Jan. 20, ONGC said it will acquire the government’s 51 percent stake in HPCL for Rs 36,915 crore as India took the first step to create a state-run oil behemoth to compete with global rivals. The deal contributed more than half of the divestment target. “That doesn’t essentially mean divestment. This is just a way to shore up revenue,” Pranav Haldea, managing director of Prime Database had told BloombergQuint earlier.

GST Compensation To States

State governments were compensated to the tune of Rs 28,398 crore till December last year for losses incurred due to the rollout of Goods and Services Tax, the report said.

According to Goods and Services (Compensation to States) Act, 2017, the central government compensates states once in every two months for losses incurred due to the new sales tax.