From the provisional budget 2019, the industry of mutual did not hoped much. But it had given a ray of light that the finance minister can take a step back for LTCG tax on equity mutual fund. The mutual fund industry was let down by the LTCG tax. But income tax sops recovered it in the budget. A hike in basic tax exemption limit could positively affect the industry indirectly. The Finance Minister announced a slide of tax sops which would help both the investors and mutual fund industry. But he did not mention LTGC tax in his budget speech.
Individuals with taxable income up to Rs. 5 lakhs are exempted from any tax as announced by the FM. He pointed out that, under Section 80C of Income Tax Act if you invest Rs. 1.5 lakhs, the tax exemption will rise up to Rs. 6.5 lakhs. Also, there has been an increase in standard deduction for the salaried tax payers from Rs. 40,000 to Rs. 50,000.
The mutual fund industry hoped to gain from the income tax sops and believed to ignore the limitation of LTCG tax. The taxpayers are expected to invest more from their savings which will trigger the assets that are managed by mutual funds.
Jinesh Gopani, Head-Equity, Axis Mutual Fund said that, “Generally, the budget is good from consumption point of view. There were a lot of tax benefits, lot of benefits to the farmers and indirect tax benefits in real estate.”
Lakshmi Iyer, Chief Investment Officer of debt and head of products , Kotak Mutual Fund analyzed the interim budget and said that, “I think it is not a euphoric budget, but it is not negative. It is neutral and in line with market expectations, so I am assuming the markets to be where it is. Market is still trying to understand the breakup of the money allotted. We are still waiting to read the fine print. Disinvestment target has been put at Rs 90,000 crores. It is looking like a far cry given the last year and year before that also.”
Lakshmi Iyer also added, “We are looking at the fiscal deficit number which will have an impact on the monetary policy. What will the RBI do now is the question. Markets will be in a little bit of limbo right now. The govt has not gone frivolous with the numbers which is positive. The global macro is positive. I am not very confident that there will be a rate cut but certainly there is a case to change the stance from calibrated tightening to neutral. I am still asking investors to stay in short-duration funds.”
It is hoped that, the FM might step back as the collected tax amount was not very significant. Also, the rollback of LTCG tax is also expected by the mutual fund players.
In the last budget, the LTCG tax on equity mutual funds was re-established by the then Finance Minister Arun Jaitley. In a financial year, the FM taxed LTCG of Rs. 1 lakh at flat rate of 10%.
The Finance Minister in his budget speech said that, “In view of grandfathering, this change in capital gain tax will bring marginal revenue gain of about Rs 20,000 crores in the first year. The revenues in subsequent years may be more.”