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Hold shares, MFs longer to escape the tax net: DTC

Hold shares, MFs longer to escape the tax net: DTC

Revision in Direct Tax Code draft, if implemented, would impact you as the definition of long-term with respect to capital gains as well as that of wealth tax have been altered.

Though the intent of the revised draft of the Direct Tax Code (DTC) released by the government is to impose higher taxes on the rich, the “aam admi” hasn’t been spared.

A minor tweak in definition of long-term for investments can have a major impact, if the draft in its present form is implemented.

Capital gains tax
Presently capital gains tax is not applicable on equity shares and equity mutual funds (MFs) held for 12 months or more. In the DTC draft it says that the 12-month period begins “after one year from the end of the financial year in which the asset is acquired.” The “asset” mentioned here refers to shares and equity MFs in this case.

So, for your shares and equity mutual fund investments to be considered long-term, the total holding period would increase to 13 to 24 months depending on when you purchased them. Under the present tax regime, if you bought shares on June 1, 2013, you could have sold it on June 2, 2014 and escaped paying capital gains tax on the profits earned. Now you will have to hold the shares at least until April 1, 2015, for the tax applicable on them to be nil.

Tax exemption bar
It was proposed that the tax exemption bar be raised to Rs3 lakh, but the hasn’t agreed to this citing a revenue loss of Rs60,000 crore.

Wealth tax
There are other areas in which the government has proposed to punish tax payers. Earlier only physical assets (such as gold and silver) were under the ambit of wealth tax. The DTC draft now says all assets – financial as well as physical – would be accounted for to calculate wealth tax. So those whose total physical and financial wealth exceeds Rs50 crore will have to bear 0.25% of the amount as wealth tax.

The upside – senior citizen age
One reason to cheer is that the age for senior citizens has been relaxed. So, you can claim the tax benefits applicable to senior citizens once you turn 60 years of age instead of the 65-year limit applicable earlier.

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