Capital tax tweaked: CA explains why millionaires move out of India once they make it up.

Lalit Rathi, founder of LKR Advisors, took a potshot at the government for deciding to raise long-term and short-term capital gains taxes in the Union Budget 2024 presented by Finance Minister Nirmala Sitharaman today. In a post on X, Rathi questioned the government’s motives, asking, “Why would the government want to derail the Indian story and hinder the prosperity of capital markets?”

In the Union Budget presented earlier today, FM Sitharaman announced that there will be an increase in the long-term capital gains tax from 10% to 12.5% and short-term capital gains tax from 15% to 20%. Rathi argued that these changes would slow down the growth of capital markets and expressed concern about the ripple effects of such policies.

" I see no reason why they tinkered with this. It just slows down the Capital market growth," he further added.

He further said in the post that while investors might eventually adjust and move on, the impact of these tax increases could discourage investment and drive millionaires to seek opportunities outside India. 

During her presentation of the Union Budget 2024 on July 23, Finance Minister Nirmala Sitharaman announced major changes to taxes on capital gains and trading activities.

For long-term capital gains, the tax rate will go up from 10% to 12.5%, with an exemption limit of Rs 1.25 lakh per year. For short-term capital gains on certain financial assets, the tax rate will increase from 15% to 20%.

Additionally, the Securities Transaction Tax (STT) will double, increasing from 0.01% to 0.02%. This will significantly raise the tax costs for traders dealing in equity and index Futures and Options (F&O).

The Finance Minister mentioned nine main priorities for this year and the future. They are improving agriculture productivity and resilience, creating jobs and developing skills, advancing human resource development and social justice, boosting manufacturing and services, urban development, energy security, infrastructure, innovation and research, and next-generation reforms.