Budget 2018: A heavy jolt has been observed in the Indian stock markets after the Finance Minister Arun Jaitley tabled the Union Budget 2018 on Thursday in which he brought LTCG (Long-Term Capital Gain) under the tax net and fixed a higher fiscal deficit target for FY19. Budget 2018 has completely slammed Indian equity markets as shares of over 2,400 companies traded in the negative territory out of about 2,850 companies available for trading on BSE. The S&P BSE Sensex plummeted 748.42 points to a low of 35,158.24 in the afternoon session on Friday. Finance Minister Arun Jaitley had tabled the Union Budget 2018 on Thursday, February 1, 2018, the last full-year budget before 2019 general elections.
In a major development in Budget 2018, Finance Minister Arun Jaitley proposed to introduce a tax on LTCG (Long-Term Capital Gain) on gains of over Rs 1 lakh at 10%. Following which a knee-jerk reaction was observed in the Indian equities and amid the heavy sell-off pressure, the S&P BSE Sensex cracked 463.28 points to hit an 8-day low of 35,501.74. The Finance Minister Arun Jaitley on Thursday also fixed the higher fiscal deficit target for the financial year 2018-2019 at 3.3% as against the target of 3.2% in the current financial year on account of shortfall in non-tax revenue due to deferment of spectrum auction. FM Jaitley also revised the fiscal deficit for the fiscal year for 2017-2018 upwards to 3.5% as against targeted 3.2%, which in absolute terms was about Rs 5.95 lakh crore. He said that the government will receive the GST revenue for 11 months, which will have the fiscal impact. He said that the revised estimate for FY18 is Rs 21.57 lakh crore as against estimated Rs 21.47 lakh crore.
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Black Friday for Indian markets
Indian equities came under pressure after the Budget 2018 with headline indices Sensex and Nifty losing nearly 2% led by a plunge in the shares of heavyweight companies such as Reliance Industries, HDFC, ICICI Bank, L&T, Maruti Suzuki, HDFC Bank, Kotak Mahindra Bank, Bajaj Auto, Axis Bank, IndusInd Bank, State Bank of India and Tata Motors. Collectively, these 12 shares alone washed off as much as 580 points out of the 661-point drop in the Sensex index.
The wider share indicator Nifty 50 also tumbled heavily in Friday’s trade. NSE Nifty tumbled 233.05 points to hit a day’s low of 10,783.85. Shares of blue-chip companies such as Bajaj Finance, Ultratech Cement, Indiabulls Housing Finance, IndusInd Bank, Kotak Mahindra Bank, HDFC, ONGC, Adani Ports, Yes Bank, Axis Bank, Asian Paints, Maruti Suzuki, L&T, Tata Steel, SBI, Wipro, HDFC Bank, ICICI Bank, Power Grid, M&M, Cummins India, DLF, BHEL, Sun TV, PFC, REC, SAIL, BEL, NTPC, Reliance Industries, Coal India shed 1-9%.
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LTCG explained by FM Arun Jaitley
In the Budget 2018 speech, on introducing a tax on LTCG, Finance Minister Arun Jaitley said, “Currently, long-term capital gains arising from transfer of listed equity shares, units of equity oriented fund and unit of a business trust are exempt from tax. With the reforms introduced by the government and incentives given so far, the equity market has become buoyant. The total amount of exempted capital gains from listed shares and units is around Rs 3,67,000 crores as per returns filed for the assessment year 2017-2018. Major part of this gain has accrued to corporates and LLPs. This has also created a bias against manufacturing, leading to more business surpluses being invested in financial assets. The return on investment in equity is already quite attractive even without tax exemption.”
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“There is, therefore, a strong case for bringing long-term capital gains from listed equities in the tax net. However, recognising the fact that vibrant equity market is essential for economic growth, I propose only a modest change in the present regime. I propose to tax such long-term capital gains exceeding Rs 1 lakh at the rate of 10% without allowing the benefit of any indexation.However, all gains up to 31st January 2018 will be grandfathered,” Arun Jaitley added.
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Earlier yesterday, Indian stock markets finished marginally lower on the Budget 2018 day in a heavy volatile trading activity with stocks of pharma and PSU bank dropping the most. The benchmark Sensex extended yesterday’s losses to close slightly lower and Nifty index also saw a little decline but managed to end above 11,000-mark. BSE Sensex lost 58.36 points or 0.16% to conclude at 35,906.66 and NSE Nifty shed 10.8 points or 0.1% to settle at 11,016.9. During the day, the S&P BSE Sensex plunged 463.28 points to hit an 8-day low of 35,501.74 while Nifty washed away 148.9 points to hit an 8-day low at 10,878.8.