What do stock markets expect from the Union Budget 2020 in terms of long term capital gains and dividends taxation?

The taxation of long term capital gain and dividends (via DDT) has been the bone of contention of capital markets for some time now. It is perhaps time to tweak LTCG. The LTCG on equities and equity funds was introduced in the 2018 budget and as per preliminary estimates it has done little to enhance revenues. That was expected. Without mincing words, it is time to get rid of LTCG tax on equities. It is not only going against the interests of the long term investor but also hampering value creation by equity mutual funds. Above all, when the securities transaction tax (STT) was introduced in 2004, it was in lieu of tax on capital gains. Subsequently, the STCG is already being taxed. But also taxing LTCG does not make any sense. In this light, the Budget 2020 needs to bite the bullet and scrap the tax on LTCG on equities altogether.

Secondly, it is very important that the budget helps to avoid the cascading dividend effect. Let me explain. Today dividends are being taxed at multiple levels. It is a post tax charge; there is dividend distribution tax (DDT) and dividends above Rs.1 million are also taxed in the hands of the investor. This is a huge cascading effect. DDT may be too lucrative to give up but the government can make a start in two ways. Firstly, the DDT on equity funds needs to be scrapped right away. Secondly, the tax paid on dividends (DDT) is a post tax appropriation. The government can make the DDT a pre-tax appropriation (subject to dividend yield limit) so that companies get tax breaks. If something like this can be though out of the box, it can give a billion dollar boost to the markets as a whole.