It is important to differentiate beliefs from facts, and equally important to accept that every belief system has its limitations. There comes a point at which it is necessary to look at things from a different perspective.
I am just sharing a different perspective, not asserting it to be absolute truth.
Different perspectives that we bring to problems leads to different solutions. Therefore, it is important to approach problems with an open mind, if we want better solutions.
Take recent PNB scam as example.
One can blame crony capitalism for the problem, ask for strong government control and better governance to root out corruption.
Alternatively, one can take a different perspective, and ask why such problems come with state owned banks. Can such a scam happen in privately owned banks, like HDFC? It is possible, but there is a sense of ownership in private banks, and the owners have strong incentives to not let anyone steal from them. Perhaps we can remove the problems of corruption and crony capitalism by reducing government control of economic resources.
But it should be kept in mind that this is just a different perspective. It will have its limitations, and every concrete problem must be approached with healthy skeptimism of our beliefs.
10% LTCG is not the issue, the attitude of the GOV and finance ministry is the issue, saying itās easy money, y should be investos r different from other asset classes, market reached very high level, these guys earned a lot, letās tax them - all these blahā¦blahā¦on National TV showsā¦where not a single paise of these people r invested in equities or never will, so that these people to know how easy or difficult is investing, what a investor goes to at the initial years during learning while investing, if he survives those years with minor losses, so that he makes Money once he control his emotions in investing then the rewards starts coming in later years, all this.
Let alone forgot how difficult is to make market beating returns in the long term ā¦
so just donāt come TV and donāt talk as u like about investingā¦becauseā¦v all know this and v r here to learnā¦for the rest of livesā¦
There is tax on tax on tax indeed
A company pays tax on its earnings. Then the company pays dividend, distributing the earnings to rightful owners of the company, but it has to pay tax on that distribution (dividend distribution tax). Again in the hands of the shareholder any dividend above 1 million is taxed @ 10 percent. So there is tax on tax on tax.
If a company earns Rs. 100, and after tax it becomes 70. Suppose all of it is distributed as dividend, another 6 rupees would be deducted, as dividend distribution tax. So the shareholder will get 64. If they are in the category of more than 1 million dividend, they will pay another 6.5 rupees as tax. So the total outgo on tax may be as high as 42 percent. These are indicative figures.
Mr Adhia Completely dodged the question on10% tax on Dividend income above 10L (After Corporation pays DDT). These are smarter people who donāt go in territory they are not comfortable. Also, the anchor missing it.
My best decision was investing in the tax free bonds heavily few years backā¦ At that time most of the so called experts were saying donāt go overboard and consider equity blah blah. Locking into around 9% post-tax returns for many years and no monitoring need from my side since all are like quasi sovereign bondsā¦ Am using the interest payments to buy into stocks apart from salary funds. I doubt if they will ever again bring back the tax free bonds.
Now, that we have to live with tax on LTCG, we have to think about being tax efficient also. According to a communication from ICICIdirect, we can avail the benefit of Long term capital loss(LTCL). We can set off the LTCL against LTCG. Also it can be carried forward for 8 subsequent years. From the following chart it is apparent that recovery from stock loss is an uphill task. Hence it makes sense to book loss when it goes beyond say 30% from purchase price and set it off against LTCG. Would appreciate fellow boarders opinion. Recovery from stock loss.xlsx (9.2 KB)
It has been a year since the LTCG change and I think most would agree there wasnāt a great payoff for the govt. as it thought it would be but then these decisions are not made for a year. In this case though I suspect strongly that the decision was made to make the most of the bull market but instead it acted as the straw that broke the camel back of overvaluations.
Now with so much pessimism around equities as an asset class (still very optimistic compared to perhaps a decade ago but thatās only natural) and elections around the corner, is it possible that the govt. might reverse this decision in this budget? Thatās the easiest way to increasing optimism before elections I think.
I think it may be done. Budget likely to be a political script than resource allocation exercise. So we can expect all sops for all - Farmers, investors, business man, common manā¦with no funding source locator. Economy , fisc etc to be casuality on the altar of politics. Election years are generally like that but this year likely to see more of that. I think mkts likely to tank after budget. God knows best.
IMO, Since it was just an year with LTCG implemented, less likely to be reversed. So they may try to fiddle with other taxes like abolishing Dividend Distribution Tax, reducing corporate tax and increasing IT slabs/reducing rates.
LTCG withdrawal may not happen, the opposition might make an issue of the Governmentās incompetence of not thinking through before making policies. No one has any complaints about a failed law, but to make a policy in haste and withdrawal of the same after one year without any apparent reason could be deemed as a foolās act.
Whether it happens or not. Such measures are beyond the reach of common investors. Why worry and discuss about a policy where in we have no control. Even if it happens the market will re adjust to its own way pretty soon. Letās focus on where the market is being equally bad with good set of results
Regards
Divyansh
I know, I was responding to the question, thought I could contribute my 2 cents.
Pondering over policies is not necessary, if we will continue what we do. Market will always a plan to counter this or celebrate this. So we too should be ready to act in accordance with the marketās mood.
Any change will literally have zero impact on the way we invest or the companies in which we invest. Even if we did, we have no conclusive proof or at least a reasonable doubt that a change may come.
I donāt think we will add any value to ourselves or others by discussing something so removed.
