Budget 2018: With the Union Budget 2018 round the corner, and investors maybe mulling how certain tweak in rules may impact their investments, many experts point out that Finance Minister Arun Jaitley may announce measures to augment long-term investments. In a recent note, Angel Broking said that mutual fund investments may become eligible for income tax benefits under Section 54EC in the upcoming Union Budget 2018.
“Section 54EC benefits are available when long term capital gains are reinvested in specific infrastructure bonds with a lock-in period. In the past, mutual funds and infrastructure equities were also included under the definition of eligible investments under Section 54EC of the Income Tax Act,” the firm noted. Angel Broking says that the move will give a boost to investors looking to create wealth over the long-term.
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“In fact, if the government goes ahead and enhances the cut-off for LTCG on equities to 3 years, then extension of Section 54EC to equities will be a good measure to neutralize the effect. Again this will be a big boost for investors to look at equities for the long term,” Angel Broking said. Finance Minister Arun Jaitley may also look to include equity under the definition of ELSS (Equity Linked Savings Scheme) in Union Budget 2018 to enhance long-term investing.“There are two aspects to this point.
“Firstly, the ELSS includes only equity mutual funds and that is narrowing the definition of eligible investments under Section 80C. In the past equity investments in infrastructure were also eligible under Section 80C subject to 3 year lock in. It is time to reintroduce that section. Also the benefit under ELSS is too small. In fact, a separate sub-section under Section 80C can be introduced for ELSS and Infrastructure equities with a separate sub-limit. That will give a big boost to long term investments in equities,” the firm said.
Amid talks that Finance Minister Arun Jaitley may bring in LTCG on equities, Shiv Kukreja of Oajas Capital told FE Online that the move may backfire and spoil the business sentiment. “Firstly, in an underpenetrated country like India where only 3-5% people invest in direct equities or equity mutual funds, I think the government should introduce more measures to encourage investors to move their investments to equities,” Shiv Kukreja said.
“The market also hopes that the LTCG on equities is not re-introduced. Tax free LTCG has been a key driver for investments in equities. However, an increase in the time limit for LTCG from 1 year to 3 years looks possible to foster a longer term approach to equities,” Angel Broking said in a note.