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Tax experts call for higher exemption on equity LTCG, donations as Budget nears

Ashutosh Kumar     January 25, 2021

Ahead of the 'unprecedented Budget' - as Finance Minister Nirmala Sitharaman has described the upcoming major policy event of the union government in view of the COVID-19-led disruptions - expectations abound on multiple fronts, especially the keenly-awaited tax proposals.

Even though the government is staring at a gaping hole on the revenue front in the current financial year due to the pandemic, tax practitioners are expecting tax relief under multiple heads in the estimates for 2021-22.

These heads include relaxation in Long-Term Capital Gain (LTCG) threshold on sales of equity shares, further relaxation in the exemption for investments, and provision of tax deductions under the new tax regime for donations made towards a social cause.

The Indian equity markets have witnessed a spectacular rise from the COVID low in March just ahead of the announcement of the nation-wide lockdown with effect from March 25 last year. Key indices have almost doubled from the March levels. Since the COVID lows, the Indian equities have added an estimated $1.23 trillion to their market capitalisation, swelling to about $2.5 trillion.

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Tax experts are of the opinion that the government may consider some relief to the stock investors. Sudhakar Sethuraman, Partner, Deloitte India, told Business Today, "It is expected that the government might provide some incentive on gains made on sale of shares. LTCG up to Rs 1 lakh on sale of listed equity shares is not taxable at present. It is expected that the government could enhance the limit in the upcoming Budget."

Apart from LTCG, Sethuraman also expects the government to increase the Section 80C threshold limits for individual taxpayers in the upcoming Budget.

It may be noted that LTCG on equity as well as equity linked mutual funds was exempt from tax before 2018. However, the government brought it under the tax ambit in 2018 by introducing a provision of 10 per cent tax on capital gains of over Rs one lakh.

Yet another matter that the tax practitioners feel needs to be addressed is exemption for donations under the new concessional rate for individuals and corporates. The demand assumes a lot of significance in the wake of the mega donations that have been made during the pandemic.

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"Under the Finance Act 2020, the benefit of various deductions and exemptions that a taxpayer otherwise used to enjoy, have been taken away. Deduction under Section 80G of the Act towards donation is one such deduction. Denial of such deduction under new lower tax regime will certainly be detrimental to the interest of the revenue and the nation," said Ved Jain, a Chartered Accountant and former president of the Institute of Chartered Accountants of India (ICAI).

A clarification on the tax residency is also one of the issues that the experts are looking forward to. The current rules stipulate that a person of Indian origin will be taxed in India if he stays in the country for more than 120 days. Since a large number of expats are stuck, there is an expectation that the Finance Ministry may come out with a clarification in the Budget.

"The government should be pragmatic in such cases as black swan events like these do not take place regularly and the extended stay was not intentional. While it is government's prerogative to decide on taxation matters, an exemption, if possible, should be granted. At heart of the matter should be single income should not be taxed in multiple countries," said Nish Bhatt, CEO, Millwood Kane International - a Cyprus based investment consultant.

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