GS Question

There were two important changes introduced in respect of the Long term Capital Gains Tax (LCGT) and Dividend Distribution Tax (DDT) in the Union Budget for 2018-2019.

1. Long term Capital Gains Tax (LCGT): Historically, India did not impose any long-term capital gains tax on the sale of equity shares. However, in the latest budget, the government introduced a 10% tax on long-term capital gains exceeding INR 1 lakh ($1,388) from the sale of equity shares or units of equity-oriented mutual funds. This tax is applicable from April 1, 2018. This change marked a significant shift in the taxation of equity investments, with the aim to generate revenue and bring equity investments in line with other asset classes.

2. Dividend Distribution Tax (DDT): Previously, companies were required to pay Dividend Distribution Tax (DDT) on the dividends declared by them. However, in the 2018-2019 budget, it was announced that DDT would now be paid by the individual recipients of the dividend income instead of the companies declaring the dividends. This change was intended to reduce the burden on companies and shift the tax liability to the individual recipients, aligning with the principle of taxing dividends at the hands of the investors.

These changes were seen as significant in the Indian tax landscape as they aimed to generate revenue for the government and bring about fairness in the taxation of capital gains and dividend income. It also represented a departure from the previous tax regime and aligned India's tax system with global norms.