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Investors got a raw deal from Union Budget 2018 presented by Finance Minister Arun Jaitley. The budget gave a mighty blow in the form of reintroduction of long term capital gains (LTCG) tax on the investments in shares of listed companies. Budget 2018 also proposed to tax the dividends declared by equity mutual funds at the rate of 10%.
The Finance Minister proposed to tax long term capital gains exceeding Rs 1 lakh at the rate of 10% without allowing the benefit of any indexation. However, all gains up to January 31, 2018 will be grandfathered, he said. He also intends to introduce a tax on distributed income (dividends by equity oriented mutual fund at the rate of 10%). This will put both the growth and dividend plans of the equity funds at par. These changes will eat into the profits of the investors.
The investors were expecting the Finance Minister to stick to the path of fiscal prudence. The fiscal deficit target for the FY2018-2019 is expected to be at 3.3% of the GDP. This is marginally higher than the expected number of 3%. This will not be positively taken by the stock markets.
The investors were also looking for introduction of new investment options in the form of long term tax free bonds. However, the same did not materialise. There was also an expectation that the investment limit under section 80C of the Income Tax will be enhanced. However this did not happen.
The corporate tax rate reduction to 25% is limited only to the companies with turnover of Rs 250 crore, which will not benefit most of the established listed companies. And hence the investors in the listed companies are unlikely to benefit from it.
All in all, Budget 2018 will be a budget most investors will like to forget as soon as possible.
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