{"id":31366,"date":"2024-07-26T21:01:28","date_gmt":"2024-07-26T15:31:28","guid":{"rendered":"https:\/\/kuvera.in\/blog\/?p=31366"},"modified":"2024-07-26T21:03:57","modified_gmt":"2024-07-26T15:33:57","slug":"the-weekly-wrap-the-only-thing-thats-certain","status":"publish","type":"post","link":"https:\/\/kuvera.in\/blog\/the-weekly-wrap-the-only-thing-thats-certain\/","title":{"rendered":"The Weekly Wrap | The Only Thing That\u2019s Certain"},"content":{"rendered":"

In this edition, we talk about the union budget and why the proposals on taxation have left many unhappy. We also talk about the budget proposals on job creation, and Mankind Pharma\u2019s $1.6 billion acquisition.<\/span><\/i><\/p>\n

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Welcome to Kuvera\u2019s weekly digest on the most critical developments related to business, finance, and the markets.<\/span><\/i><\/p>\n

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tl;dr<\/strong>\u00a0Hear the article in brief instead?<\/p>\n

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\"\"<\/p>\n

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Tax his land, Tax his bed, Tax the table at which he’s fed.<\/span><\/i><\/p>\n

Tax his tractor, Tax his mule, Teach him taxes are the rule.<\/span><\/i><\/p>\n

Tax his work, Tax his pay, He works for peanuts anyway!<\/span><\/i><\/p>\n

Tax his cow, Tax his goat, Tax his pants, Tax his coat. Tax his ties, Tax his shirt, Tax his work, Tax his dirt.<\/span><\/i><\/p>\n

Tax his tobacco, Tax his drink, Tax him if he tries to think.<\/span><\/i><\/p>\n

Tax his cigars, Tax his beers, If he cries tax his tears.<\/span><\/i><\/p>\n

Tax his car, Tax his gas, Find other ways to tax his ass.<\/span><\/i><\/p>\n

Tax all he has, Then let him know, That you won’t be done till he has no dough…<\/span><\/i><\/p>\n

\u2013 Author unknown<\/span><\/i><\/p><\/blockquote>\n

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Back in the 1970s, the then prime minister Indira Gandhi, who was also the finance minister, had proposed raising the highest tax rate to a whopping 97.5%.\u00a0<\/span><\/p>\n

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After much consternation, Gandhi had to withdraw the policy soon after and settle for a significantly lower rate of 75%. But since hardly anyone actually paid taxes back then\u2014India\u2019s per capita income was just about Rs 1,000 then– and fewer still had incomes above Rs 5 lakh, it did not really matter to the vast majority of people.<\/span><\/p>\n

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Mercifully, we now live in times when the country\u2019s tax regime is far less usurious, at least on paper.\u00a0<\/span><\/p>\n

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Having said that, as the tax base has widened manifold since the Indian economic liberalisation in the early 1990s, any tinkering with the numbers impacts crores of taxpayers, a vast majority of whom belong to the great Indian middle classes.<\/span><\/p>\n

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Perhaps, this is why, in an ostensible bid to give India\u2019s salaried class some relief, Finance Minister Nirmala Sitharaman tweaked personal income tax slabs in the new tax regime and raised the standard deduction from Rs 50,000 to Rs 75,000. In effect, a person in the 30% tax bracket would get to save Rs 17,500 per year.<\/span><\/p>\n

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But when Sitharaman tweaked rates of taxes on long- and short-term capital gains and took away the benefit of indexation from asset classes such as real estate, it did draw criticism from some quarters.<\/span><\/p>\n

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Sitharaman upped the tax rate on long-term capital gains to 12.5% from 10% and raised the exemption limit to Rs 1.25 lakh a year from Rs 1 lakh. She also lifted the tax rate on short-term capital gains on some financial assets from 15% to 20%. Moreover, unlisted bonds and debentures were brought under the ambit of capital gains.<\/span><\/p>\n

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But there was more. As we just mentioned, the government took away the benefit of indexation on the sale of property. This basically means individuals selling their houses or shops or a piece of land will no longer be able to adjust the purchasing price using inflation and bring down their capital gains.<\/span><\/p>\n

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You see, before the budget, the sale of property was subject to a 20% tax on capital gain, with the benefit of indexation. This adjusted the purchase price for inflation, effectively bringing down the taxable capital gains. The budget has removed the indexation benefit but reduced the tax rate to 12.5%.\u00a0<\/span><\/p>\n

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The finance minister said the government had tried to simplify the capital gains tax structure. Its critique, however, claimed that with indexation gone, in many cases, the tax liability for people looking to sell their property would go up.\u00a0\u00a0<\/span><\/p>\n

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Sitharaman also raised the Securities Transaction Tax (STT) on derivatives trading, even as she abolished the angel tax on all types of investors putting funds in startups. Moreover, she said that buyback of shares will be considered an income for beneficiary shareholders, and just like in the case of real estate, the benefit of indexation will not be available.\u00a0<\/span><\/p>\n

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In her budget speech the finance minister also said that her government would begin a comprehensive review of the Income Tax Act of 1961, an exercise, she said, will be completed in six months.\u00a0<\/span><\/p>\n

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So, where do we go from here? Will tax rates on long- and short-term capital gains be hiked further in the years ahead? Will the tax hike affect returns on your investment?<\/span><\/p>\n

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We are not clairvoyants, so we don\u2019t know. But if you want to put off your investments simply to avoid taxation, that may not be the smartest thing to do. So, decide your goals and stick to your asset allocation, adjust a little if you must, but keep investing. A few tax tweaks shouldn\u2019t matter much in the long run.<\/span><\/p>\n

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On the Job<\/b><\/p>\n

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More than taxation, what the finance minister would rather have us talk about are her proposals on generating employment. Sitharaman proposed three new employee-linked incentive schemes in the budget. These schemes aim to increase enrolment with the Employee Provident Fund Organization, offer support to first-time employees and help employers create jobs.<\/span><\/p>\n

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The government will incentivise companies, including those in the manufacturing sector, to offer internships as well as employment to people, the minister said. She also said that the government will focus on skill development programmes and will offer loan subsidies for higher education.\u00a0<\/span><\/p>\n

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Sitharaman proposed government spending in excess of Rs 2 trillion over the next five years and hopes to create as many as 4.1 crore jobs. A big chunk of the budget, Rs 1.48 trillion, has been set aside for education, employment and skilling initiatives, with the aim of training 20 lakh youth over the next five years.<\/span><\/p>\n

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What explains the thrust on employment generation? Well, the finance minister knows that unemployment has to be taken head-on. Although the official data puts the rate of unemployment at 6.7%, the Centre for Monitoring Indian Economy reported the rate to rise sharply to 9.2% in June 2024.\u00a0<\/span><\/p>\n

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Will the government\u2019s job creation efforts lead to immediate results?\u00a0<\/span><\/p>\n

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Experts say some sectors such as manufacturing will benefit, but only in the medium term. They also say that some low-end sectors such as leather, textiles, garments, basic chemicals and basic machine tools might see a quicker response, but that an overall recovery will take time. Other sectors that could see come uptick in the short term include construction, engineering, financial services, retail, e-commerce, power and energy, tourism and agriculture.<\/span><\/p>\n

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\"Start<\/a><\/b><\/h4>\n

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Other Budget Highlights<\/b><\/p>\n

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