Feb 29, 2016 06:51 PM IST | Source:

Some gain and some pain for investors

REIT investors saw some positive announcements. However, time tested instruments such as EPF saw some increase in tax. Dividends for big investors attract additional tax.

Union Budget 2016 was a mixed bag for investors. Removal of dividend distribution tax from distribution of profits from the special purpose vehicle to Real Estate Investment Trust (REIT) was a demand for some years. Arun Jaitley chose to fulfil this in Union Budget 2016. This will open up the doors for REIT.

For the unlisted shares the holding period is brought down to 2 years from 3 years earlier, to qualify for long term capital gains. This is a big positive for the start up space and upcoming small and medium sized companies, as they can get investors. Investors too can venture into unlisted space with relatively lower time frame. SEBI is also instructed to launch new instruments in commodity markets. This should benefit investors, as they may get commodity option to hedge their positions. Also RBI will take steps to encourage retail participation in government securities market.

The decision to stick to fiscal prudence with fiscal deficit target of 3.5% is a positive for bond markets. This would push the interest rates down and will be beneficial for fixed income investors.

While there are positives about the investors’ community, the imposition of tax at 10 per cent on dividend receipts in excess of Rs 10 lakh in addition to the dividend distribution tax collected by the dividend paying companies worried large investors. Finance minister opted to increase securities transaction tax (STT) on options to 0.05 per cent from 0.017 per cent. STT on cash market turnover is left unchanged. This should increase the cost of hedging for investors.

The tax on 60 per cent of withdrawals from Employee Provident Fund (EPFO) in respect of contributions made from 1 April 2016, is seen as a precursor to introduce tax on PPF and long term holdings in equities, making them less attractive for incremental investments.

Finance Minister did not give any hike in basic exemption limit or investment limit under section 80C. Nor he announced any tax-free bonds which many investors were looking for.
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