Three strikes spread cheer, some gloom
Market players were expecting that if long-term gains are taxed, the STT would go. But this has not happened
Finance Minister A run Ja it leyh as left saver sand investors largely alone. There are three major areas of change in this year’ s Budget for them; the first one is positive but only for senior citizens, one neutral and the third one will seem negative after a few months.
A. Senior citizens: There is a bunch of benefits for senior citizens including:
A sharp hike in tax exemption limit for interest income from banks and post offices from ~10,000 to~50,000
Hike in deduction limit for health insurance premium and/ or medical expenditure from ~30,000 to ~50,000 under section 80 D.
Increase in deduction limit for medical expenditure for certain critical illness from ~60,000 (in case of senior citizens) and from ~80,000 (in case of very senior citizens) to ~100,000 for all senior citizens, under section 80DDB. While this a beneficial move, procedure to claim these deductions is extremely cumbersome.
Tax deducted at source is not required to be deducted under section 194 A. Benefit is also available for interest from all fixed deposit schemes and recurring deposit schemes.
Pradhan Mantri Vaya Vandana Yojana has been extended to March, 2020, and has raised the current investment limit to ~1.5 million from ~750,000. This is a great scheme from the Life Insurance Corporation, which guarantees eight per cent income and should be considered by senior citizens looking forward to a regular income.
All these are useful reliefs set against the background of falling interest rates and loss of earning power of senior citizens, most of whom who live off fixed deposits. Falling interest rates have been a major cause of resentment for the middle class.
B: Standard deduction: Another aspect was widespread belief that consultants and are allowed to avail of deduction son expenses, but salaried employees get no such deduction and have to spend money on tax paid income. To bring some parity between the two classes, the government has brought back the idea of standard deduction, a flat figure deducted from taxable income. The Budget has introduced a standard deduction of ~40,000 but has simultaneously removed the benefits of transport allowance, medical reimbursement and other allowances. The net gain might be marginal for salaried employees, and substantial for nonsalaried and retired taxpayers.
C. Equityholders: For the past few weeks, speculation has been rife that the government will no longer allow long-term capital from listed shares to remain tax-free. This Budget removes the long-term gains from listed shares from tax-free status after 13 years. The finance minister has proposed to re-introduce longterm capital gains tax of 10 per cent on listed equity shares (and equity mutual funds) for gains made exceeding ~100,000, without allowing any indexation benefit.
The tax will come into effect for gains made after January 31. The cost price will be the high of January 31 or the actual cost price, whichever is higher. This substantially protects the humongous gains investors have made in the past few years. For example, if the actual cost price is ~100 and the January 31 high is ~500 and the shares are eventually sold for ~700, the 10 percent capital gain will be calculated on ~200(~700-500). The net impact of the change in long-term capital gains will be minimal now but will really kick in over the course of next year and in future. The short-term capital gains tax remains at 15 percent. The market players were expecting that if long term gains are taxed, the securities transaction tax or ST T( charged at 0.1 percent of the transaction value of securities on both buy and sell transactions) would go. But this has not happened. STT continues.