The Union Budget for 2018-19 brought significant changes in the Long-term Capital Gain Tax (LCGT) and Dividend Distribution Tax (DDT). The reintroduction of a 10% tax on long term capital gains arising from transfer of listed equity shares is a positive move, as it addresses the bias against investing in manufacturing and prevents erosion in the tax base. Furthermore, it brings listed shares on par with unlisted shares that are already taxed.
The introduction of a 10% tax on distributed income by equity-oriented mutual funds creates a level playing field across growth-oriented and dividend-distributing funds, where dividends from equity-oriented funds were previously tax-free and exempt from paying DDT.
However, the changes should be accompanied by the abolishment or reduction of the securities transaction tax rates to prevent double taxation. The reintroduction of LCGT and the introduction of DDT will lead to an increase in the cost of investment, and the securities transaction tax rates would further add to the burden. Overall, the changes in LCGT and DDT are steps in the right direction towards creating a level playing field and ensuring fairness in the taxation system.