The announcement of the LTCG tax has rattled the stock market. The attractiveness of equity compared to debt funds stands eroded because its tax advantage is now gone. Holding equities will also get costlier now.
Given that LTCG on equities is tax free only up to Rs 1 lakh per financial year, investors need to pare down their return expectations and invest more to achieve your goals. The additional amount you need to invest to build the desired corpus goes up significantly, with longer holding periods (see table). This is because the impact of a one per cent cut in returns on account of LTCG tax gets significantly higher with longer investment periods due to compounding.
