LTCG to Keep Financialisation of Corporate Savings in Check, Hasmukh Adhia Says

Hasmukh Adhia

Story highlights

  • Is there any logic of keeping one class of investments, completely out of the tax net
  • The corporates are very happy investing their surplus money in mutual funds

New Delhi: Finance secretary Hasmukh Adhia said on Sunday that the imposition of the long-term capital gains (LTCG) tax protects the “small retail investors” and keeps a “financialization of corporate savings” in check, that keeping one set of investments outside the tax net would give rise to a potentially dangerous situation.

Lot of people used to tell us, please, there is one very good story going in India of the stock market becoming bullish. Don’t disturb that good story. Then there were others who used to tell that this is the best time to do it, he said.

He also asked We have not disturbed the stock market at all… Look here, you tell me. Is there any logic of keeping one class of investments, completely out of the tax net?

He said that the stock market has been giving about 15 per cent returns for the last few years, while addressing a gathering at the Indian Institute of Management here.

The corporates are very happy investing their surplus money in mutual funds and equity markets of other companies, rather than using that surplus to create a new manufacturing company… So, what was happening was financialization of corporate savings, which is not a good thing for the economy. So, we decided to do it, 10 per cent to begin with and we also said that for small investors whose gains are up to Rs 1 lakh per annum, long term capital gain will be exempted… so the small retail investors are protected, he added.

Adhia said the imposition of LTCG was done in a “mild and modest way and without disturbing the stock market.” He felt that the crash of the Sensex after LTCG tax was due to fall in global markets. “But if you do not do this and you allow one set of investments to be so attractive that the whole world runs towards it then it is potentially dangerous situation. All we are saying is … if you are earning 15 per cent in long term capital gain, then we are saying give 1.5 per cent to us that’s all. 13.5 per cent return is still there.

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Hasmukh Adhia was appointed as the Union Financial Services Secretary by the Appointments Committee of the Cabinet (ACC) in November 2014. He assumed office on 3 November and demitted it on 31 August 2015, when he was appointed the Union Revenue Secretary. 

(Inputs from IndianExpress)

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