With the interim budget coming up on February 01st, what are the key things that the equity markets are expecting? Actually, there are 5 key demands.
Scrap the equity LTCG tax
Whether the government will do it this time or not is debatable. One thing is that if it has not contributed much to revenues then it just does not make sense being there. The whole idea was to gradually move Indian investors towards equity to create wealth in the long run. If the government takes away 10% of the wealth so created, then it is going to throw a lot of long term financial plans into disarray. When combined with STT, this LTCG tax amounts to double taxation. The government will give a big relief to stock markets by scrapping the LTCG Tax.
Clarify on Angel Tax
This is one area where the government is expected to give clarity in the budget. A clear statement on Section 56 of the Companies Act is needed to give an assurance to entrepreneurs that they would not be arbitrarily taxed on the excess above the fair value. Such issues purely become a chance to hound the tax payers and in the process will also stifle the spirit of enterprise. In fact, the number of angel funding deals fell in this year due to the fear over the angel tax. Full-fledged clarity will give comfort to the businesses and to investors.
Scrap the Dividend Tax
The dividend tax was introduced on equities in the 2016 budget. The idea was that any dividend income above Rs.1 million per year would be taxed at the rate of 10%. This actually amounts to triple taxation. Firstly, dividends are a post-tax appropriation. Also, dividends paid by companies are subject to DDT. On top of that; the 10% tax in the hands of the investor actually becomes triple taxation. Government would do well to scrap this tax.
Extend 80C to equities
This has been attempted in a limited way for first time equity investors. The budget can include equities under Section 80C subject to a lock in period of 1 year. It would substantially enhance returns in the hands of the investor in effective post tax terms.
Handle the macros carefully
A good investment climate requires 2 things at a macro level. Firstly, the fiscal deficit needs to be kept in control. The stock markets will certainly give a thumbs-up to fiscal responsibility. Secondly, big programs for rural income enhancement and infrastructure push will also be welcomed by markets. The government also needs to ensure that there is a genuine supply of quality paper in the stock markets through divestments and strategic sales! ©