Budget 2018: Contrary to widespread expectations, the Modi government’s last full Union Budget failed to bring anything significant for the common man, although senior citizens were given some tax relief, while the poor got some sops. However, Finance Minister Arun Jaitley also brought some bad news for the equity market, while detailing measures to develop the bond market and giving the yellow metal a boost. Like others, savers and investors also had many expectations from this Budget, like increasing the Section 80C deduction limit, incentivizing savings through bank deposits, increasing limit for investment of capital gains under Sec 54EC, allowing LTCG exemption on equities to continue and making NPS more attractive, among others. Sadly, none of these expectations was met. Now the million-dollar question before savers and investors is: Where to invest now keeping the current as well as future scenario in view?
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Experts say the Budget 2018 has reintroduced levy of Capital Gains Tax on sale of shares and mutual fund units held for more than 12 months. These gains were earlier exempt from levy of tax and, therefore, this was a very lucrative investment opportunity. However, now, Long Term Capital Gains Tax @ 10% has been levied on such gains.
Although Long Term Capital Gains Tax @ 10% has been levied, which makes investment in shares and mutual funds less lucrative as compared to earlier regime, but the post-tax gains are still higher as compared to other asset classes. “Equity and MF returns have been compounding at a very healthy rate and will continue to grow. Moreover, Long Term Capital Gains of up to Rs 1 lakh is exempted and tax would only be levied on the amount which exceeds Rs 1 lakh. So, if you are planning to invest for the long run, the returns generated after payment of tax would still be higher as compared to other asset classes,” says Karan Batra, Founder & CEO of CharteredClub.com.
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Thus, despite the introduction of Long Term Capital Gains Tax, equities remain a favourable investment option. Given the growth momentum returning in the economy and abundant liquidity available both globally and locally, equity investments will continue to driver smart returns going forward. “This is especially true for young investors who can take a longer-term view and can bear some volatility. Only difference is earlier there was a great incentive to extend your holding period for more than a year to earn tax-free returns. Now you would be better off booking your returns as soon as you achieve your targets. Difference between short term and long term is only 5% and does not warrant holding beyond the level where your target has been achieved. Also, it makes sense for small investors to divide their portfolio into a number of different accounts to take advantage of the Rs 1 lakh exemption limit on Long Term Capital Gains Tax for every individual,” says Ashish Kapur, CEO, Invest Shoppe India Ltd.
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There are several instruments the return from which is still exempted. These instruments include the likes of Public Provident Fund (PPF), National Savings Certificate (NSC), Sukanya Samriddhi Scheme etc. The income earned from these instruments is still exempt which makes them lucrative. However, these investments come with a long lock-in period and withdrawal from these is not easy before the lock-in period.
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For senior citizens, fixed deposits make a comeback as an attractive investment option. Interest rates are likely to move up and also, the tax-free interest limit for senior citizens has been hiked. Given the uncertainties in the bond market and the volatility in equities, fixed deposits make a lot of sense for senior citizens.
Apart from senior citizens, FDs are good for other people also. Therefore, “if you are investing for the short term, you can consider investing your surplus funds in a Fixed Deposit (FD). The returns in the long term from an FD would not be great, but in the short term they would be able to give you a fixed and safe return. Although the returns from these is taxable, but the good part here is that there is no lock-in period and you can withdraw anytime,” says Batra.
Apart from these, there are some other good opportunities for you. For instance, if you are still living in a rented house, you can consider availing the benefits of the Affordable Housing Scheme of the Modi Government wherein you will get interest subsidy for loans.
“Property still stands as one of the best options given the relatively stable home loan rates and the PMAY scheme for first-time house buyers. In fact, if you are selling off an old inherited property, the gains from those can be invested in a new property as there is no tax to be paid on the gains, if you use the entire gain from the transaction to buy another house within two years or construct another house within three years. However, one should be careful not to lock-in all one’s money into one avenue, especially something like property which is a relatively non-liquid asset,” says Adhil Shetty, CEO, Bankbazaar.com.