The following are our observations and thoughts on the above. Do note we have only incorporated the simpler parts which affect most of us leaving aside the complexities.
- Parity has been brought about in capital gains taxes for various assets like Shares, Mutual funds, Fund of Funds, ETF, REIT, Gold, Real Estate etc with short term capital gains taxed at 20% and long- term gains taxed at 12.50%. Also, the time period for short- and long-term capital gains (between 1 to 2 years) is clearer. This reduces the confusion about the various rates and time horizon.
- Popular assets like Direct shares, Equity ETF, REITs, INVITs and Equity oriented Mutual Funds would be taxed at 20% for short term (less than 1 year) and 12.50% for long term (1 year and above). These rates have increased but for a long-term investor in equity assets where the investment horizon should be 5 years and above, this should not be a big problem.
- Annual long term gains up to Rs 1.25 lakhs in equity assets (direct shares, equity funds and equity ETF) would be tax exempt. This is positive but the increase is miniscule.
- Indexation benefits (cost price adjusted with inflation) which helped reduce long term gains in assets like Real Estate, Gold, specified mutual funds etc have been abolished. This has been substituted by a flat tax of 12.50% instead of 20% post indexation. This would be positive for only those above assets/investments which gave returns better than inflation. However, for assets (especially real estate) bought prior to 2001, cost price of 2001 would be considered.
- Long-term Capital gains in Real Estate can be reinvested in residential real-estate or in capital gains saving bond up to the specified Also, Long-term Capital gains in assets other than Real Estate can be reinvested in residential real-estate up to the specified limits. These earlier provisions have been carried forward and helps to reduce long term capital gains taxes.
- Specified Mutual Funds (investing between 35% to 65% in equity assets), Fund of Funds (mutual funds investing in equity assets) and International Mutual Funds would be taxed at the rate of 12.50% on long term capital gains (2 years and above). This reduces the anomaly which some of these mutual funds suffered from the last budget.
- Pure debt oriented mutual funds continue to be taxed at slab rates for both short and long No changes on that front. This makes them very similar to banking products but only positive is postponement of taxation.
- NPS has been given a big push under the New Tax Regime. So, the employer contribution has been enhanced (only under the new tax regime) from 10% to 14%. This would benefit all those whose employer contribution into EPF, Superannuation and Gratuity is lesser than Rs 7.50 lakhs. Eligible employees should make the most of this as NPS happens to be a low-cost diversified product.
- Standard deduction for salaried employees has been increased to Rs 75,000 from the earlier Rs 50,000. This will make the new tax regime attractive to the salaried.
- Beginning October 1, 2024, firms will no longer be taxed on buybacks. Instead, the proceeds from the buyback will be considered as a dividend and taxed at the respective slab rates of the shareholder. This is negative for investors especially company promoters as earlier these taxes were paid by the company.
- Slab rates under the new tax regime have been made extremely attractive and easy. It makes good sense to migrate to the new tax regime if one is not having housing No tax for salaried for annual income up to Rs 7.75 lakhs p.a. (and Rs 7 lakhs for others) and a tax of roughly Rs 50,000 for annual income of Rs 10 lakhs (5% tax) for others.
In conclusion, we feel the Union Budget has made the tax provisions simpler especially on the capital gains front and there is a greater push for adopting the new tax regime. However, we always believe that the payoff from tax saving strategies is only limited and beyond one’s control. The primary focus hence should be on one’s profession/business where the upside is unlimited.
The above are my personal thoughts and not necessary of the organisation I represent. Feel free to connect with me at 9845557582/ naveen@naveenrego.com for any suggestions/ feedback/interpretations.
Note & Disclaimer:
- Investment in the securities market is subject to market Please carefully review all relevant documentation before making an investment.
- Registration granted by SEBI, membership of BASL and certification from NISM in no way guarantees the performance of the intermediary or provides any assurance of returns to investors.
- It would be important to consult a tax practitioner before acting on any of the above tax
Thanks, and regards,
Naveen Julian Rego- CFP
Principal Officer