The introduction of the new tax regime four years ago brought about significant changes for taxpayers like 72-year-old Sridhara, a retired PSU banker based in Bengaluru. Sridhara was delighted with the reduction in his tax liability and the freedom from locking up his money in tax-saving instruments. This year’s Budget has further improved his situation with an increase in the standard deduction and changes in the tax slab structure, resulting in a reduction of more than Rs.15,000 in his tax liability. Sridhara rates the Budget nine out of 10, appreciating the government’s efforts to simplify personal income tax and expand its reach through the new tax regime.
However, not everyone shares Sridhara’s enthusiasm. Investors like Alok and Priyanka Hada from Noida are disappointed by the Budget proposal to remove the indexation benefit on real estate and gold. Indexation, which adjusts the acquisition price of an asset based on inflation, can significantly reduce the tax payable on capital gains. The removal of indexation means that investors will now have to pay tax on the entire capital gain from the sale of the asset, leading to higher tax outflows. The Hadas, who had planned to sell a property for an upgrade, now face a substantial increase in their tax liability, prompting them to rate the Budget six out of 10.
The real estate industry has expressed its discontent with the removal of indexation, arguing that real estate investments are being unfairly treated compared to equities. Stamp duty, a significant revenue source for state governments, is much higher for property transactions than the Securities Transaction Tax (STT) on stock market transactions. The Budget’s proposal has raised concerns about the viability of property investments and the need for a reevaluation of stamp duty rates on resale transactions.
Despite the challenges faced by investors in property and gold, there are still ways to avoid capital gains tax. Investors can reinvest the gains from the sale of property in another house or capital gains bonds issued by NHAI or REC to avail of tax exemptions. Additionally, losses from property transactions can be set off against gains from other assets, such as stocks and mutual funds, providing some relief to investors.
The Budget has also impacted investors in equities and mutual funds, with higher taxes on short-term and long-term capital gains causing concern. Rugved Navandar, a data analyst from Mumbai, is worried about the increase in tax on short-term gains, affecting his day trading and short-term investments. Similarly, Zuber Khan, a businessman and active options trader, is concerned about the impact of higher taxes on short-term gains and the hike in STT on derivative trading, leading him to rate the Budget two out of 10.
On the other hand, small investors may benefit from the proposed changes, with the exemption threshold for LTCG from stocks and equity funds raised to Rs.1.25 lakh. Financial advisers suggest strategies like harvesting tax-free long-term gains and maintaining equity allocations in portfolios to optimize tax benefits. The Budget also addresses the issue of high TCS rates on foreign remittances, allowing taxpayers to adjust TCS against salary TDS, providing relief to parents sending money to children studying abroad.
In conclusion, the Budget has elicited mixed reactions from taxpayers and investors, with some benefiting from the changes while others face challenges. The government’s efforts to simplify personal income tax and broaden its scope through the new tax regime are commendable, but there is a need for further evaluation of the impact on different segments of taxpayers and investors.