The two major announcements with respect to the capital market, with specific pointers to small investors are abolition of long-term capital gains (LTCG) on close-ended schemes, bringing them on par with open-ended schemes and the hike in the securities transaction tax (STT) by 25%. This would hit arbitrageurs and day-traders.
As per the Budget proposal, the new rate of STT on delivery-based transactions (on both buy and sell side) would increase from present 0.075% to 0.09375%; on non-delivery based transactions it will rise from 0.015% to 0.01875%; on sale of equity oriented MF units it will rise from 0.15% to 0.1675% and on the derivatives trades it will rise to 0.0125% from 0.01%.
The FM in his Budget speech said, The open ended equity oriented schemes and close-ended equity oriented schemes will be treated on par for exemption from dividend distribution tax.
Majority of market experts believe that abolition of LTCG on the close- ended schemes will benefit retail investors who have still stayed invested in the old close-ended schemes like the one floated by the Morgan Stanley Mutual Fund and also the recent one floated by Pru-ICICI AMC, Franklin Templeton Mutual Fund and HDFC Mutual Fund.
Sandesh Kirkire, CIO, Kotak Mutual Fund said, While realigning close-ended schemes with open-ended schemes on the tax front was a positive move; the clarification on the tax status for Fund of Fund schemes v/s underlying equity schemes is still awaited. The removal of the 10% criteria for MFs to invest in foreign equity is a positive move. The increase in total limit to US$ 2 billion for investing in foreign equity together with the ETFs is also a positive step.
Ajay Bagga, CEO, Lotus India AMC said, The increased flexibility to invest abroad, the alignment of close-ended funds tax treatment with open-ended funds and the ability to invest in foreign ETFs are positive moves for the MF industry. The increase in service tax rates and STT has been taken in its stride by the market.
Hemang Raja, senior vice president, managing director, IL&FS Investmart Ltd said, The retail investors should be happy as there is no bad news for them.