Comment on the important changes introduced in respect of the Long-term Capital Gains Tax (LCGT) and Dividend Distribution Tax (DDT) in the Union Budget for 2018–2019.
1. Budget 2018-19 re-introduced LTCG tax on
Budget 2018-19 re-introduced LTCG tax on equity: 10% on gains exceeding ₹1 lakh from listed shares and units.
2. LTCG applies to transfers after 31
LTCG applies to transfers after 31 January 2018; gains accrued up to that date are grandfathered, protected from tax.
3. The Dividend Distribution Tax (DDT) on
The Dividend Distribution Tax (DDT) on companies was hiked from 15% to 30% of dividends distributed.
4. DDT is paid by companies before
DDT is paid by companies before distribution, so shareholders bear the incidence without grossing-up relief.
5. Surcharge and cess push the effective
Surcharge and cess push the effective DDT rate well above the nominal 30% level.
6. The LTCG move aimed to widen
The LTCG move aimed to widen the tax base and remove the tax arbitrage between equity and debt investments.
7. Critics argued LTCG taxed long-term savers
Critics argued LTCG taxed long-term savers and dampened retail investor sentiment in equity markets.
8. Grandfathering cushioned existing investments while the
Grandfathering cushioned existing investments while the ₹1 lakh exemption protected small investors.
9. Both changes balanced revenue mobilization with
Both changes balanced revenue mobilization with market stability, drawing mixed reactions from investors.
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