Investors are generally concerned before each Union Budget. This time is no exception, with investors keeping a careful watch on developments around the Budget 2023-24, hoping that finance minister Nirmala Sitharaman deals them a favourable hand.
Under the regulations that are now in place, private investors are excluded from paying taxes on their long-term capital gains as long as such gains on shares. They are subject to an additional 10% in taxation over this threshold. It is recommended that the limit be increased to at least ₹2.5 Lakhs. If an individual's annual income is less than ₹2.5 Lakhs during the tax year, the individual is free from paying income tax on such income.
To account for inflation, growing income levels, and to entice more investors into stock markets, the exemption for long-term capital gains on equities investments should be expanded.
Many investors are observed dabbling in stocks and units of equity mutual funds under the guise of profit booking simply because they have been held for one year, and a 10% tax is levied on long-term capital gains beyond the ₹1 Lakh exemption limit. However, appropriate tax policies are required to stimulate genuine long-term investment. Therefore, capital gains should be tax-free if investments in unlisted securities, listed securities or mutual funds are held for at least 10 years.
Currently, long-term capital gains on shares over ₹1 Lakh in a fiscal year are taxed at a fixed rate of 10%, regardless of how long you owned them. Therefore, allowing indexation advantage for determining long-term capital gains on investments in stocks and units of equity mutual funds is necessary.
The indexation advantage of equity investments must also be seen in light of the increased degree of risk that equities investors assume when compared to fixed-income investors.
The ₹1 Lakh capital gains exemption is only available for long-term profits from equities shares and equity-oriented mutual funds. Still, it is anticipated to be extended to long-term gains from debt-oriented mutual funds as well.
Some investors may choose not to invest in shares at all. However, such investors must pay taxes on earnings obtained from long-term investments in debt funds and are not eligible for an exemption.
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