Taxation is not as crucial as the fact that we are in a high-growth era that will continue to be the real source of investment returns We have made money not because we are great, or even good, investors, but because the Indian equity markets are up 3-4x in 10 years. Im thankful to be living in a highgrowth, well-run economy, rather than a no-gain, no-tax one
Dhirendra Kumar
CEO, Value Research
Consider the following hypothetical conversation between two investors on the recent Budget. It may not be a real interaction, but is representative of the many exchanges on the social media and in real life.
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A: “The Budget is terrible. The long-term capital gains tax has been increased from 10% of gains to 12.5%.”
B: “But look at the incredible infrastructure buildout that’s happening. Look at the way the government has maintained the fiscal balance despite Covid and so many other challenges. No other large economy around the world has managed to do so. Consider the growth rate!”
A: “What does that have to do with my tax? I made profits in the market and now the tax on these profits will be 25%higher.”
I find it fascinating that a large number of people seem unable to make the connection between what’s happening in the economy at large and the money that they earn from their equity and mutual fund investments.
I’m sorry to put it so bluntly and many people may hate me for it, but the biggest input in the money that you and I make in the markets is not our supposed genius as investors, but what I call the ‘India tailwind’. We have made money not because we are great, or even good, investors, but because the Indian equity markets are up 3-4x in 10 years. As someone said on X, a sure-shot way of avoiding capital gains tax is to buy high and sell low. This is not just a joke. If we did not have the good fortune of living in this high-growth economy, then ‘buy high, sell low’ would have happened automatically for many more of our investments. We would not have had the opportunity to complain about capital gains tax. I know that I’m thankful to be living in a high-growth, well-run economy, rather than a no-gain, notax one.
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More NewsThe other market-related tax increase is in the securities transaction tax (STT) on derivative trading. If this can, indeed, tamp down the uncontrolled gambling in the derivatives markets, it will be good. While it could have have some impact, perhaps the addiction may be too much for many people. The other day, I heard someone say that STT and capital gains tax are like statutory warnings on cigarette packets. The hardcore addicts understand what they are doing, they know diseases are on their way, but most of them cannot help themselves. It’s the same with those addicted to trading in derivatives. The comparison with disease is not casual. If you check online for symptoms related to ‘compulsive gambling disorder’, you’ll know what I mean. Of course, if the government really wants to curb this, it has to consider restricting the supply, rather than trying to reduce demand. The stock exchanges and brokers cannot continue to encourage this activity, while we pin our hopes on STT to dissuade the gamblers.
Another interesting, new investment avenue that the Budget has announced is the NPS Vatsalya scheme. Essentially, it’s an early starter NPS option, whereby parents can start an account for their minor children, and when they turn 18, it can be converted into a regular NPS account. NPS also get a boost by allowing a higher deduction for employer contribution to the employee account. While changes like these don’t get much mention compared to other Budget headlines, these will eventually have a greater impact on people’s lives.
All things said, when the dust settles, it’s a Budget of modest changes, which is as it should be. I’m not going to tell you about some bonanza that will benefit you or some development that will ruin you. We have a stable, high-growth environment, which will continue to be the real source of investment returns, just as it has been in the past. That’s where the returns are coming from, and will continue to come.
(The author is CEO, VALUE RESEARCH)
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This story originally appeared on: India Times - Author:Faqs of Insurances
