Long term capital gains (LTCG) tax on equities and mutual funds will continue as the government informed the Rajya Sabha that there is no proposal to alter the current mechanism. In response to another question, the Ministry said that Currency in Circulation has gone up by over 66 per cent from pre-demonetisation level.
Capital Gains tax
In the Rajya Sabha, it was asked whether Government would increase the period of LTCG on mutual funds and equities from one year to two years and would abolish taxes on LTCG to boost sentiments of the economy and accelerate speedy recovery after Covid-19. Responding to that, Minister of State for Finance Pankaj Chaudhary said in a written reply: “There is no such proposal under consideration.”
Any capital asset held by the taxpayer for a period of more than 36 months immediately preceding the date of its transfer will be treated as long-term capital asset. Tax on gains made after selling of such asset is called LTCG. However, in respect of certain assets like shares (equity or preference) which are listed on a recognised stock exchange in India (listing of shares is not mandatory if transfer of such shares took place on or before July 10, 2014), units of equity oriented mutual funds, listed securities like debentures and government securities, units of UTI and zero coupon bonds, the period of holding to be considered is 12 months instead of 36 months.
LTCG is charged at 10 per cent (plus surcharge and cess as applicable) on gains arising from sale of listed securities and if it exceeds ₹1 lakh and any unit of UTI or mutual fund (whether listed or not) and zero coupon bonds.
Chaudhary also mentioned that the government earned over ₹1,200 crore through LTCG in AY 2018-19, over ₹3,400 crore on AY2019-20 and over ₹5,300 crore in AY2020-21.
Currency in Circulation
In response to another question, Chaudhary said in a written reply that currency in circulation (CiC) stood at over ₹17.74 lakh crore as on November 4, 2016 which rose to over ₹29.16 lakh crore as on November 19, 2021. “Besides, the usual factors (inflation, GDP growth, replacement of soiled banknotes and reserve stock requirement), the current level of CiC is also influenced by the Covid-19 pandemic induced public demand for cash on account of uncertainty which increased the precautionary demand for currency,” he said.
Further, he mentioned that the combination of greater public demand for cash and contraction in GDP has led to an increase in CiC as a percentage of GDP from 12 per cent during FY2019-20 to 14.5 per cent during FY2020-21. However, year-on-year growth in CiC has decelerated sharply to 7.9 per cent in November from pandemic-influenced surge to 22.2 per cent a year ago.