Roadmap for Answer Writing
1. Introduction (30-40 words)
- Briefly introduce the two taxes: Long-term Capital Gains Tax (LTCG) and Dividend Distribution Tax (DDT).
- Mention the context: Union Budget 2018-19 introduced significant changes to both taxes affecting the investment landscape.
Relevant Fact: LTCG refers to the tax levied on profits from assets held for more than 12 months (equities) or 36 months (other assets). DDT is imposed on dividends distributed to shareholders. (Source: Union Budget 2018-19.)
2. Important Changes in LTCG and DDT (100-120 words)
a. Reintroduction of LTCG Tax
- LTCG on equities reintroduced after being exempt for years.
- Tax rate of 10% on gains exceeding ₹1 lakh from listed equity shares.
Relevant Fact: This tax reinstated a 10% levy on profits exceeding ₹1 lakh on the sale of listed shares. (Source: Union Budget 2018-19.)
b. Introduction of DDT on Mutual Funds
- 10% Dividend Distribution Tax imposed on dividends by equity-oriented mutual funds.
- This change was intended to close loopholes in tax-free dividend distribution.
Relevant Fact: DDT introduced at 10% on dividends from equity-oriented mutual funds. (Source: Union Budget 2018-19.)
3. Advantages of the Changes (80-100 words)
a. Broadened Tax Base
- The reintroduction of LTCG increases government revenue without significantly overburdening investors.
- Supports large-scale infrastructure and national projects.
Relevant Fact: The reintroduction of LTCG was expected to enhance government finances for infrastructure projects. (Source: Post-Budget Analysis 2018.)
b. Reduction in Market Volatility
- Encourages long-term holding of assets, fostering a stable market environment.
Changes in Long-term Capital Gains Tax (LCGT) and Dividend Distribution Tax (DDT) in Union Budget 2018-2019
1. Long-term Capital Gains Tax (LCGT):
2. Dividend Distribution Tax (DDT):
These reforms were designed to address issues of tax equity and compliance, and they significantly impacted both individual investors and corporations.
Model Answer
The Union Budget 2018-19 introduced notable changes to the taxation of capital gains and dividends, significantly impacting investors and the stock market.
Reintroduction of LTCG Tax
Introduction of DDT on Mutual Funds
Advantages of These Changes
Source: Post-Budget Market Analyses 2018.
Disadvantages of These Changes
Source: Financial Market Reports, 2018.
Conclusion
In conclusion, while the 2018-19 budget changes promoted equity and a broader tax base, they also led to market adjustments and increased compliance burdens. Policymakers must balance these effects to ensure sustainable financial growth.