As we enter 2023, India could continue to benefit from a high investment-to-GDP ratio. We expect a Budget that is empowering for the investors and traders, while equipping the economy and the capital markets.
It’s true that the Indian stock market grew exponentially in the last 2 years but we can see a steady drop in the number of active participants over the last six months. Firstly, we witnessed a downward trend due to the Russia-Ukraine war, local economic factors, changes in regulations and also changes in individual investors’ risk tolerance or investment strategies.
Secondly, a number of recent regulatory changes may have contributed to the decline in active participants in the Indian market. Thirdly, complex tax laws and regulations can be a burden for market participants, discouraging some from even participating in the market.
What would be investors’ expectations from the Budget?
Investors would be expecting the Budget that is empowering the Retail Investor & Trader while equipping the economy & the capital markets
Streamlining Income Classification – Intraday cash market trading is classified as speculative income, but intraday derivative trade is classified as business income. Apart from this non-intra-day trades less than 1 year are classified as Short term. Speculative Income under Short Term Income. This will make income classification easier for taxpayers and ease the system of ambiguity.
Simplification of Taxation in Trading & Investments – Most investors struggle to understand the threshold restrictions for determining whether an asset is classed as long-term or short-term in order to determine tax liability. This is due to the fact that the holding period for terming it an investment in the long-term varies by asset class. While units of debt funds must be held for a minimum of three years to be considered a long-term capital asset eligible for a reduced tax rate on booked profits, units of equity funds must be held for one year, and real estate and unlisted stocks must be held for two years.
Also, if Short Term Capital Gains(STGC) tax exemption can be extended to Rs.1 Lakh, it will encourage many new entrants into the Stock Market. STCG covered under section 111A is charged to tax @ 15% (plus surcharge and cess as applicable).
There is a need to relook at the Securities Transaction Tax (STT) and Commodities Transaction Tax (CTT) which have become a burden for the traders & investors. A rebate under Section 88E for STT/CTT, will be a welcome reintroduction as it will have a significant income impact and result in more volume trading and ensure a larger collection of STT/CTT for the government.
“We believe that with these measures the Finance Minister can give the required boost to the industry that best reflects the economy of India”