Reduction in effective tax rates for Individuals a positive
The Tax code proposes a significant increase in the tax slabs for personal income tax which, if implemented, will result in a meaningful increase in disposable income, especially benefiting FMCG and other domestic consumption stories. At the same time, the code proposes to do away with the distinction between long and short-term capital gains and abolish the Securities Transaction Tax (STT), effectively taxing all capital gains at the applicable marginal tax rate for the tax-payers’ total income. At present, the long-term capital gains tax is Nil on equity transactions on which STT is paid and 20% on all other assets, while the short-term capital gains tax rate is 10% on equity transactions on which STT is paid and 30% on other assets. In our view, the proposed increase in tax slabs is quite substantial in view of the country’s per capita income distribution, and should reduce the impact of the proposed increase in capital gains tax rates.