Abolishing long-term capital gains tax could cost government ₹40,000–50,000 crore: SBI Research
GS3Economy · S&T · Environment · Security· Fiscal policy, budget & taxation (GST)· Mains·
Fiscal policy and market dynamics: a relevant GS3 case study on taxation and capital flows.
Why in news
SBI Research released a report estimating a revenue loss of ₹40,000–50,000 crore if the government abolishes long-term capital gains tax.
Background
SBI Research highlights that current projections are affected by weaker market returns and ₹4.8 lakh crore in cumulative FII outflows. The report suggests raising the exemption threshold to ₹2 lakh and introducing a tiered tax structure based on holding periods.
Facts for Prelims
- FactSBI Research estimates a revenue loss of ₹40,000–50,000 crore from abolishing long-term capital gains tax.
- FactCumulative FII outflows reached ₹4.8 lakh crore according to the report.
- FactProposed exemption threshold for capital gains is ₹2 lakh.
Prelims practice question
What is the cumulative amount of FII outflows mentioned in the SBI Research report?
- (a)₹6.2 lakh crore
- (b)₹1.8 lakh crore
- (c)₹4.8 lakh crore
- (d)₹2.5 lakh crore
Show answer
Answer: (c) ₹4.8 lakh crore — The report notes that cumulative FII outflows reached ₹4.8 lakh crore.
For Mains
Q. Discuss the fiscal implications and market dynamics of altering long-term capital gains tax structures in India's evolving capital market.
Dimensions to cover in your answer
- Revenue volatility: Balancing fiscal deficit targets with the need to incentivize long-term domestic investment
- Market liquidity: Impact of FII outflows on domestic capital formation and market stability
- Tax equity: Trade-offs between high-threshold exemptions and progressive tiered taxation for retail investors
Keywords: Fiscal deficit · Capital gains tax · FII outflows · Market liquidity · Taxation policy
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