Economic growth in India has been on a decline for at least the last two years. Looking ahead to the 2020 budget, promises have been made by the Finance Minister and other officials that changes will be made to encourage growth, so what can we expect?
Long Term Capital Gains (LTCG)
What counts as LTCG? Well, generally, the profits made from the sale of any asset held for more than 12 months is termed as Long Term Capital Gains.
The LTCG tax was introduced by Arun Jaitley in the 2018 budget. As a result, a 10% tax was imposed on LTCG 14 years after it was discarded. Although a marginal revenue gain of about Rs. 20,000 Crores was expected in the first year, it is likely that this ambitious target has not been met and the tax has, instead, made little difference. Data shows that out of the 2280 stocks listed on the Bombay Stock Exchange only 320 have generated positive returns, over the last two years.
The ideas being floated with regard to LTCG are:
Cutting LTCG rates
The current LTCG rate is a whopping 10%. Many investors are pushing for an LTCG tax rate cut. Cutting the LTCG tax on equities to 5% from 10% could indeed be one form of recourse.
Hike the LTCG threshold
Currently, the tax is levied on any capital gains exceeding Rs. 1 Lakh in a year. Experts have claimed that hiking the threshold from Rs. 1 Lakh to Rs. 3 Lakhs could provide a much-needed relief to investors.
Increasing the holding period
As mentioned above, for an investment to qualify as long-term, it should have been held by the investor for a period of 1 year or more. A hike in this holding period has also been a popular suggestion. A change in the definition of long-term from one year to two years should make a big difference for investors.
Scrapping the LTCG
A rollback of the LTCG entirely may also be on the cards. Experts claim that in order to boost investments, doing away with LTCG levied on equity is also an option up for consideration.
Changes to the LTCG tax could make all the difference in the world for investors, enabling them to secure higher returns and thereby, more purchasing power.
If you, too, are looking to invest in the long run, avail high returns and also save on taxes, you don’t have to wait for changes in the LTCG tax to be implemented. You can do so by investing in ULIPs (Unit Linked Insurance Plan) - one of the only market instruments to be exempted from LTCG tax. ULIPs come with three benefits including insurance, investment and tax-savings. You can opt for ULIPs on Bajaj Markets and choose from three different plans - Retirement Plan, Child Plan or Investment Plan - as per your unique needs and goals.
Income Tax
Corporate tax rates were already cut in the 2019 budget after being increased the year before, but it has become evident that the impact of this move was not good enough to spur growth. This year, many believe that the government needs to offer relief to the individual taxpayer as well, in order to fuel increased consumer spending. Here’s a list of ideas with respect to income tax that have been doing the rounds:
New Slabs and Rates
A committee has been set up to review direct taxes in our country and these are the new tax slab suggestions that they have come up with:
Tax Slab |
Tax Rate |
Up to 10 Lakhs |
10% |
Between 10 and 20 Lakhs |
20% |
Between 20 Lakhs and 2 Crore |
30% |
Above 2 Crore |
35% |
The committee will discuss these new tax slabs for the 2020 budget with the senior officials of the government where a final call will be taken.
Flat Tax Rate
Another idea being floated is a flat tax rate without any exemptions (similar to the corporate rate cuts). Experts claim that a rate between 5-30% is being mulled over, with a 15-18% flat rate being deemed an ideal amount. The new flat tax rate may be applied only to those with income above Rs. 50 Lakhs. There have been claims that a higher flat tax rate may also be levied on the super-rich.
Each of these ideas has their own set of pros and cons, and still leaves much to be desired. However, such changes will be beneficial for the individual and for the economy at large. Combined with the expected benefit with regards to the LTCG, the 2020 budget will open up significant options to the Indian consumer and investor.
In summation, the slow growth is likely to force the government to make significant changes to the Long Term Capital Gains tax and to provide personal income tax cuts to help increase the purchasing power of the individual Indian consumer.
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