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Indian Budgets and Markets

The Indian equity market is quite eagerly looking for a direction as the Government prepares itself to present the full fledge Union budget 2017 on the 1st of February 2017. The investors of the Indian capital markets are hoping to hear some major positive announcements that will provide the much-needed fillip to the domestic markets. The budget of a country shows its impact in its economy, its stock markets and also the interest rates. The way the Finance Minister invests the funds also affects the fiscal deficit. This in turn also influences the money supply and also the economy’s interest rate. If the interest rates are high, the capital cost of the industry increases which in turn lowers the profits earned and hence there can be a decrease in the stock prices. The fiscal measures that are taken up by the Indian government can show an effect on the expenditure of the common man. For example, if the direct taxes are increased, then the disposable income would decrease and this will, in turn, reduce the demand for various goods. As the demand gets decreased, there would be a decrease in production and this shows an effect on the economic growth. On the other hand, if the indirect taxes are increased, there would be a decrease in demand. The main reason for this is that the indirect taxes are in many cases passed on to the consumers as higher prices. As the prices get higher, the demand reduces and this will reduce the company 's profit margins. This slows down the growth and production. Non-planned expenditure like defense and subsidies will also show an effect on the economy. What 's in Store for Union Budget 2017? After the announcement of demonetization in November 2016, the people of India are indeed waiting eagerly for their acche din and are looking forward to the presentation of the Union Budget 2017 by the Finance Minister. The common man has high expectations from the budget as they are expecting some benefits in the form of the tax breaks. There was a slight panic in the stock markets in the first week when Prime Minister mentioned that those gaining profits from the capital markets are getting away with lower taxes. Later, Finance Minister Arun Jaitley clarified that they do not have the intent to impose the long-term capital gains tax on the equities. But, there has been speculation that the upcoming budget will change certain tax rules for the stock market investments. H2 TAG Let us have a look at some of the budget 2017 highlights and some possible changes that might occur. Long Term Capital Gains:  The present rule states that there is no tax if the holdings are held for a year. Experts feel that this minimum holding period will be extended to 2-3 years. As per the present rule, there is no limit on the profits that are tax-free but investors think that the tax-free gains will be capped to make sure that the small investors are affected. Short Term Capital Gains: At present, the investor needs to pay a tax of 15 % on the stocks if they are sold before a year. There might be a change to this in the budget where the tax rate might get hiked to 20 % or the gains can be added to the income of the investors. The Divided Income: The existing rule states that the tax of 10 % has to be paid if the dividends exceed more than 10 Lakhs in a year. A possible change to this can be a tax rate based on the individual investor 's tax slabs. A Longer Minimum Period for Holdings: One major change an investor can expect is a longer holding period for equity funds and shares. At the moment, if the stocks or the equity funds are held for a year, the gains obtained are considered tax free. Experts also feel that if the stock term investment gains from stocks are taxed higher, traders will hold on to their investments to avoid tax and this will prevent people from trading stock markets as gambling where they can earn big in less time. With an extension in the minimum holding period, even the investors get a chance to get off any losses from shares against the other taxable gains. Experts also feel that the higher taxes will also push some investors towards mutual funds as they do not get taxed on gains from buy and sell. Our Finance Minister, Arun Jaitley might fulfill his indications he made of tax cuts but these might only be for the lowest rung. People from the middle-class and those from the corporates cannot expect much, thanks to the political and the financial compulsions of the government.


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