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Synopsis: The Union Budget 2024's hike in short- and long-term capital gains taxes, along with an increase in the securities transaction tax (STT), has ignited a fierce debate among investors and analysts. Opinions are divided on the implications of these changes for the stock market and overall investor sentiment.
The Union Budget 2024 has introduced significant changes to capital gains taxation, sparking a heated debate within the investment community. The short-term capital gains (STCG) tax has been raised from 15% to 20%, while the long-term capital gains (LTCG) tax has been increased from 10% to 12.5%. Additionally, the STT on futures and options trades has been hiked to 0.02% and 0.1%, respectively. These adjustments have led to mixed reactions from market participants.
Deepak Shenoy, Founder & CEO of Capitalmind, expressed disappointment over the increase in capital gains tax rates but acknowledged the clarity brought by the equalization of rates across asset classes. He rated the budget seven out of ten, highlighting the balance between disappointment and clarity.
Conversely, Aveek Mitra, founder of Aveksat Financial Advisory, was critical of the LTCG tax hike. He argued that fund managers and advisors who do not invest their own money might downplay the significance of the increase. He emphasized that stock investments, despite being the riskiest asset class, can be life-changing and should not be subjected to higher taxes.
Shyam Sekhar, founder of ithought Financial Consulting, viewed the tax changes as reasonable but anticipated complaints from investors. He pointed out that investors typically prefer low taxes despite aiming for high returns.
Samir Arora of Helios Capital drew a parallel with cigarette makers who have convinced the government about the elasticity of demand. He suggested that the stock market, being a significant addiction, sees fund managers and brokers showing little concern for higher taxes, thereby preventing any substantial protest against the hikes.
Vijay Kedia, a renowned investor, advised investors to focus on finding new opportunities rather than wasting time debating budgetary changes. He emphasized the importance of staying forward-looking in investment strategies.
The government's rationale behind these tax hikes includes curbing speculation in the market, supported by SEBI studies indicating that a significant majority of individual intraday and F&O traders incur losses. While some analysts argue that the hikes are excessive, others believe they simplify the tax structure across asset classes and promote fiscal clarity.
Comparative international tax rates reveal a diverse landscape. For instance, the U.S. levies capital gains taxes based on overall taxable income, ranging from 0% to 20%, whereas Brazil employs progressive rates from 15% to 22.5%. Japan taxes stock gains at approximately 20.315%, and Australia offers a 50% discount on capital gains taxes for assets held over 12 months.
As the debate continues, the market's response to these tax changes will unfold in the coming months, influencing investor behavior and broader market trends.
Disclaimer: The information provided in this article is for educational and informational purposes only and does not constitute financial advice. Investors should consult with a qualified financial advisor before making any investment decisions.
