Budget 2022: What Does The Indian Stock Market Expect?3 min read
As India gears up for its upcoming annual budget for the financial year 2022-23, there is plenty of speculation around the announcements, particularly regarding potential benefits for the common people.
The stock market has been volatile since the past few months after the benchmark Nifty 50 index touched an all-time high of 18,604 in October last year. To add to this, India is currently in the midst of the third wave of the Covid-19 pandemic recording an average of nearly 3 lakh positive cases a day. This is invariably putting pressure on the market.
Having said that, investors and traders still have a plethora of expectations from the upcoming Union Budget, which will be presented by Finance Minister Nirmala Sitharman on February 1st.
We, at Paytm Money, have listed our own set of expectations with regard to tax exemptions on investments in the stock market:
Expectation No. 1:
Investors anticipate reduction or removal of the Securities Transaction Tax (STT), since it could potentially help them earn higher returns. Such an announcement could also attract newbie investors to the stock market.
STT was introduced in the year 2004 by then Finance Minister P. Chidambaram which is levied when you buy or sell equity shares of a company, futures and options in securities.
The market saw many new entrants after the 2020 pandemic-induced crash.
Data sourced from Press Information Bureau, Government of India
There is a second set of tax levied on sale of equity- Long term capital gains (LTCG) tax which was introduced in the 2018 budget. It is applicable on the sale of equity which has a holding period for more than one year and currently stands at 10%.
Before 2018, the long term capital gain earned was completely tax-free. Apart from LTCG, taxes such as STT, Stamp Duty etc are also charged on equity transactions.
Only the short-term capital gains were taxed at a rate of 15%. The objective behind keeping LTCG-tax free was to increase the active participation of investors in equity markets. Owing to this exemption, the investors favoured equity as an investment vehicle.
However, LTCG on equity-oriented funds bore the brunt of taxation after the Union Budget of 2018. LTCG over Rs 1 lakh on listed equity shares per financial year became taxable at the rate of 10% without the benefit of indexation.
Hence, the reduction or removal of LTCG tax will bring a significant positive impact on investors’ returns. It will also encourage investors to stay invested for a longer period.
Tax exemption limit in the National Pension System (NPS) should be raised to help the investors save more for their future needs.
NPS serves as an efficient tax-saving instrument for all citizens. This voluntary retirement savings scheme was rolled out to allow citizens to make fixed contributions towards planned savings in the form of pension. Investors can avail an additional tax deduction for investment up to Rs. 50,000 in NPS under section 80 CCD 1(B) over and above the Rs 1.5 lakh under sector 80 CCE of Income Tax returns.
Apart from stock market investors, regular tax payers are also expecting relief in the form of revised income tax slabs, further tax exemptions in sections 80C and 80D, lower taxes for essential consumer goods, among others.
The economy is already grappling with the Covid crisis, battling inflation, unemployment and other concerns. Morgan Stanley, in its budget prediction report on January 18, said that it expects the country’s GDP to expand 7.8% in this financial year and 7.2% in financial year 2023-24.
Furthermore, the analysts also expect the budget to focus on fiscal consolidation and investment-driven growth.
On Budget Day, we will be bringing you the highlights and helping you make sense of the announcements. Do watch this space for more!
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