Once again relaxation in long-term and short-term capital (LTCG) gains has taken rounds as the Union Budget for fiscal 2023-24 nears. FM Nirmala Sitharaman will present the budget for the fiscal year 2023-24 which will be her fifth budget as the finance minister. Currently, the holding period specified for LTCG is different for various capital markets instruments which are seen as complex. To strengthen investments in markets, expectations are that the government should increase the holding period for LTCG. Coupled with this additional tax rebates are likely to boost large trading volumes in Indian markets which are expected to drive economies as well.
According to Prakhar Pandey, Founder and CEO, Moolaah, capital gains that are reported from an appreciation level have different holding periods and tax slabs. Units of Gold Funds & Debt funds need to be held for 3 years, to state long-term capital gains on their portfolio, while Equity funds and units, need to be held for 1 year to qualify as long-term capital gains. Units of unlisted equity and real estate are to be held for 2 years to qualify as long-term capital gains.
At present, long-term capital gains are charged at a 20% rate plus surcharge and cess as applicable. However, in certain cases such as listed securities, UTI units, or mutual funds, the LTCG is charged at 10% plus surcharge and cess. Whereas, the short-term capital gains tax rate is 15% plus surcharge and cess.
Pandey added, “The varied tax structure on the long term and short term, also tends to booking of profits and churning across portfolio’s. There should be no long-term capital gains tax on Equity funds, Unit of listed and unlisted equity beyond a holding period of 7 years. This will lead to lesser taxes / costs for the investor, and an increase in the holding period as well.”
Also, Pandey believes that capital gains from listed equity and funds are 10%, however, unlisted equity is 20% — and this disparity should be changed to create unification across listed and unlisted markets. Further, he suggests a reduction in the highest personal tax rate.
The highest tax slab is 30% and with the highest surcharge and education levy put in, this rises to 42.744%. Pandey added, “a reduction on the surcharge or tax slab will leave a better disposable income and newer form of capital appreciation across investments.”
Further, Pandey believes that the imposition of CTT and STT has hampered market liquidity, leading to high transactional fees to execute a transaction and lower profitability. STT/CTT rebate under section 88E will lead to a larger trading volume and economies of scale for the govt. as well. Additionally, he said, Pension oriented financial products, with the same tax-efficient structure as PPF, will help in retail investor participation at a micro level.
Meanwhile, further, for retail investors, Manish Jeloka, Co-head of Products & Solutions, Sanctum Wealth said, “This will be the last full budget by the Government before the 2024 elections and under normal circumstances this would have been a populist one. However, given the fiscal constraints and need to stimulate growth in the face of a slowing global economy, the Government will have its task cut out.”
Jeloka added, “We believe that there will be continued focus on fiscal consolidation, domestic manufacturing, and infrastructure spending which would in line with the last union budget. Moreover, increased revenue mobilization would be a key focus area for the Government, and we could see increased thrust on disinvestments of PSUs and monetization of land bank. On the personal tax front there could be marginal changes in tax slabs or increase in 80C limits while we may see selective increase in import tariffs to shore up Government revenues and help domestic manufacturing sector. In addition the Insurance sector could also see some relief or impetus for faster growth.”
Budget 2023 will be presented by Finance Minister Nirmala Sitharaman on February 1st.
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