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The long-term capital gains tax has gone up from 10 per cent to 12.5 per cent. This has come as a major disappointment to investors. Your word on that?
Indexation is a very important thing. The government should recognise that if your investment appreciates as much as inflation, it has actually not grown. Still, you need to pay tax.
Of course, one has to look at the short-term capital gains also going up from 15 to 20 per cent, and the long-term capital gains going up from 10 to 12.5 per cent. But the more important thing is that the government is now progressing towards the new tax regime. The problem is that the old tax regime is being completely ignored, meaning that section 80C is gone. Section 80C is not relevant for most people, simply because all the new enablement has come in the new tax regime. And it is not even being talked about nor will it get revised.
Most Indians got started in saving and investing because of Section 80C. I think it is very crucial that people are encouraged to not only save but invest as well. After all, the whole problem is the short-term orientation that we see among investors, not long-term investing.
And once you are forced to invest and see the magic of compounding, the first holding of say more than three years actually enhances your experience.
The exemption limit has also gone up from Rs 1 lakh to Rs 1.25 lakh per year. What's your take on that?
It is in line with what has happened in lieu of the increase in the capital gains tax. Equity was exempt from capital gains tax till February 28th, 2018. Now, there was a provision made when the said law came into effect. While your gains would be taxed, all the gains accumulated on your investment till the date (February 28th, 2018) were still grandfathered.
If I had an older investment, all the old gains till that date were exempt. All the gains past that particular date are taxed. And that is called grandfathering.
In this case-the introduction or the hike in the capital gains tax-there is no mention of grandfathering. If you sell today, you are liable to pay the revised capital gains tax rate.
The securities transaction tax on FnOs (futures and options) has also gone up. And it's somehow in line with what SEBI has been saying so far.
It's a policy decision. And government incentives or disincentives by way of taxation are one way of controlling one's behaviour.
A SEBI study came out with a statistic that 90 per cent of FnO traders actually lose money. Since this is a transaction tax and not capital gains, I feel as a result of this, now 95 per cent will lose money.
If you had to list three hits and three big misses of the Budget, what would they be?
One hit is a small reduction in your tax bill. So there is a nominal reduction because of the increase in standard deduction now. Also, another slab has been created.
Furthermore, I am quite encouraged by the increase in the employer's contribution to NPS. So far the government was contributing 14 per cent to their employees' NPS account and for the private sector, it was only 10 per cent. Now, the latter can go up to 14 per cent, and that is a long-term investment in NPS. So, the government accepting this proposal to bring parity with government employees is very encouraging.
Then, comes the NPS Vatsalya scheme. Now, this is interesting, because NPS is a market-linked investment. So far the government has always encouraged savings to be parked in fixed income. Here, it is almost like a government-sponsored low-cost market-linked children's plan. And here the investment will become the child's once they turn into a major. So, it could be a child's education fund, it could be a child's wedding fund, or any purpose. All in all, this is an introduction of a new product category in the framework of NPS because NPS is a proven design now. It's low-cost, it's market-linked and works perfectly. What's more, it's very well-regulated.
Suggested read: Getting started with NPS
When we come to the misses, the first is the imposition of a higher capital gains tax. And I'm principally opposed to capital gains tax. If I'm having some gain on a stock, it is after the company has paid taxes, and I am actually selling my ownership of a company. And that appreciation should not be taxed because the company has paid the taxes in the first place. So on that front, I'm opposed to it. Also going up from 10 to 12.5 per cent is a 25 per cent hike in long-term capital gains tax.
Second is that I'm very much opposed to two basic things. One is that 80C is being actively discouraged in the new tax regime. Second, indexation has still not been provided in any of these investments. The government cannot really levy taxes on appreciation, which might be lower than inflation.
To incentivise long-term saving, the government needed to encourage people and reduce taxes. Here there wasn't a reduction in taxes, instead, something severe has been imposed.
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