Budget 2023: Govt needs to consider simplifying Long-term Capital Gains tax

Budget 2023: Govt needs to consider simplifying Long-term Capital Gains tax

Market


I expect the Union Budget 2023 to be populous, giving some benefits to support farmers, boost agricultural activities, and provide sops to the mass in rural areas. Finance Minister will continue to focus on fiscal consolidation, domestic manufacturing, infrastructure spending, and increasing employment opportunities. A few avenues to watch out for in this Budget are highlighted below:

I believe it is difficult for government to give tax cuts as some sectors of the economy are still recovering from Covid concerns but simplifying LTCG can and should be considered. As the holding period specified for LTCG for different asset classes is different and complex to understand for various instruments, this structure can and should be simplified to avoid usual irregularities and reduce litigation.

In my opinion and recommendation, the need of the hour is to go for Simplification of the tax code for better compliance. The government can bring all long-term assets under one regime to simplify the current ad hoc complicated law. Stocks, bonds, Gold and RE can be brought under a 15% no indexation benefits and a 20% regime with indexation benefits which means that roughly if stocks are held for 7 years the effective rate will still be near 10%. The dividends on equity should remain tax-free as the corporates are already paying the dividend distribution tax. The purpose of STT that was introduced in lieu of LTCG has run its course and should be abolished.

India’s railways system is the fourth largest in the world, and the government has plans for modernization and expansion in the future. This includes the development of high-speed rail, the use of advanced technology such as automation and data analytics, and the construction of new railway lines and stations. Additionally, there are plans to increase the use of renewable energy sources in the railway system and to improve the overall customer experience. The Indian government had also announced 100 lakh crore National Infrastructure Pipeline (NIP) in 2019, which includes several railway projects, which will be implemented over the next five years. Major stocks that continue to benefit in the railway sector would be RVNL, IRCTC, BHEL, BEML, Titagarh, IRCON, etc.

The PSE stocks have rallied hard along with PSBs in the last 6 months in hopes that the widening fiscal deficit will force the government to press through the divestment program. My view is that the government will be left with no other option but to divest at whatever valuation to complete the divestment target of this term before 2024. Shipping Corporation of India, CONCOR, NALCO and NMDC all can be the front runners in this program in the coming year.

The way forward for the PLI scheme in India includes:

– Expanding the scheme to more sectors: The government could consider expanding the scheme to other sectors such as renewable energy, electric vehicles, and aerospace to further encourage domestic manufacturing.

– Improving the ease of doing business: To ensure the success of the scheme, the government needs to continue to improve the ease of doing business in India, such as by simplifying regulations and providing infrastructure support.

– Encouraging foreign investment: The government could also look at ways to attract foreign investment in the country by providing incentives such as tax breaks and by reducing bureaucratic red tape.

– Monitoring and evaluation: The government should regularly monitor and evaluate the scheme’s implementation to ensure that it is meeting its objectives and making the necessary adjustments to improve its effectiveness.

Overall, the PLI scheme has the potential to be a powerful tool for driving economic growth and creating jobs in India. The government should continue to work on improving the scheme’s implementation and expanding it to more sectors to reap its full benefits.

The author, Alok Jain is smallcase manager and Founder, Weekend Investing

 


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