With the new tax regime proving to be more beneficial, the need to invest in tax-saving products is no longer necessary to obtain tax benefits. This may have a direct impact on long-term investments and savings in an environment in which tax benefits determine investment decisions.
As viewed from the perspective of the average citizen, this budget emphasises the new tax regime designed to appeal to the average citizen as well as the ultra-rich. As a result, this will now be the standard option, not just by design but also by choice.
With the standard deduction, individuals earning up to Rs 7 lakh (Rs 7.5 lakh for salaried) will pay no taxes, saving Rs 39,000. Additionally, for those with taxable income over Rs 5 crore, the new tax regime would be highly advantageous in light of the reduced surcharge, in addition to the fact that the marginal tax rate for such individuals is projected to be lowered from 42.74% to 39%.
The potential impact on savings and investment is as follows:
- As a result of the new tax regime becoming more attractive, it is no longer necessary to invest in tax-saving products to benefit from tax benefits.
When tax benefits determine investment decisions, this could have a direct impact on overall investments and savings. Although a reduction in investments may have a negative effect on individual investors in the long run, this could also have a negative impact on the overall spending of the government on capital and infrastructure.
- In the Sukanya Samriddhi Yojana, an individual’s investment in a female child will continue to accrue tax-free interest in the account under the new tax regime, and the proceeds of the maturity will also remain tax-free.
However, as a result of the new tax regime, the investments made under this plan will not be eligible for a tax deduction under Section 80 C. Long-term savings are therefore expected to be enhanced, thereby fostering long-term growth in wealth and economic security.
- Investors should continuously monitor changes in the investment environment to ensure that their portfolios comply with new regulations.
Therefore, having a thorough understanding of capital gains taxes and developing strategies to minimise them is an important part of your investment portfolio. As a result of the budget, concerns about the new capital gains tax regime related to gains from equity investments, equity purchases, and foreign exchange trading have been resolved.
In addition, the much-anticipated increase in the tax-exempt threshold for long-term capital gains (LTCG) to more than Rs. 1 lakh, in addition to provisions designed to streamline the tax system, has been pushed back until later.
- If STT is paid (STCG), stocks and equities will continue to be subject to a 15% short-term capital gains tax; if an off-market transaction occurs, the corresponding tax slab rate will be used.
It is possible to avoid lower capital gains due to unpaid STT by using the appropriate strategies to minimise capital gains tax.
- During the pandemic, equity-oriented funds received a torrent of assets thanks to methodical investing strategies. The increase in pandemic savings, some of which were invested in equities, has resulted in notable gains during the last two years. High-net-worth persons may decide to invest in particular equities instruments if they want to continue earning greater returns and take advantage of additional reliefs included in the budget for 2023–24, despite the fact that there are no changes to the tax system relating to equity, stock, and foreign currency trading profits.
Conclusion
Geopolitical changes and the pandemic’s consequences have caused Indian financial markets to fare better than those of comparable emerging nations in recent years. The finance minister’s decision to leave the capital gains tax laws and rates for firms unchanged bodes well for equities, stock, and currency traders.
