It's not the budget

Dhirendra Kumar's July 27 Editor's Note on what the budget does not mean for your investment returns and what it actually does elicited a flurry of responses during the week. Whether you agree or disagree, your insights are always sharp and thought-provoking. As a token of appreciation, we have dedicated this section to you - our valued readers.

The budget's impact on your investment returns is often misunderstood. While the LTCG (long-term capital gains) tax has increased from 10 to 12.5 per cent, let's not overlook the government's impressive infrastructure buildout and fiscal balance, even amidst challenges like Covid.

Many people fail to connect the dots between the thriving economy and their market gains, mistakenly crediting their investment skills instead of the 'India tailwind'. This high-growth economy has been the real driver of our investment success.

The increase in the STT (Securities Transaction Tax) on derivatives trading could potentially reduce rampant gambling in this market, much like statutory warnings on cigarette packs. However, curbing this addiction might require more than just tax hikes.

One exciting new option is the 'NPS Vatsalya' scheme, which allows parents to start an NPS (National Pension Scheme) account for their minor children, converting to a regular NPS account when they turn 18. Changes like these, though less talked about, could have a significant impact over time.

All things said, when the dust settles, it's a budget of modest changes, which is as it should be. I'm not going to tell my readers that here's something that will be a bonanza or here's this thing that will ruin you. We have a stable, high-growth environment, which will continue to be the real source of investment returns, just as it has been in the past. That's where the returns are coming from, and will continue to come from.

What our readers say

I really liked this article. If there is no growth, we can't make money and don't need to pay taxes. On derivatives, there is one expiry every day like the lottery. Increasing STT may help the government earn more revenue but won't curb gambling. It is like selling cigarettes and saying cigarette smoking is injurious to health.

- Sathyamurthy Srinivasan

I agree with almost all points you highlighted but, in my view, abolishing indexation is one of the most foolish acts. This govt could not bring down inflation for many years now and it will never be and is the reason for their poor performance in the recently concluded national election and in such scenarios, it is wiser to continue the indexation benefits but add more tax to it, if needed and that would have been a more balancing act.
Otherwise, your views are bank-on!

- Seshadri Iyer

First of all, let me thank you for the perspective you have put forward about the economy and the market from time to time, which make a great impact on the thought process of tiny investors like me.

I absolutely loved the way you have analysed the budget in the post today. I never came across such an insightful approach until now. As you have said, there are many investors (including me) who didn't like the increase in taxes. But as you have rightly put, we should take a step back and look at the big picture of Indian economy. Thank you once again!

- Kanak Nambiar

I am in agreement with your POV. As a matter of fact, the investor has to look at the growth of his actual purchasing power, which is a net outcome of higher cash inflows and lowering of sale price of consumer durables and essentials due to the economy in cost
of production on account of volume of production.

I retired on May 31, 2005 with a net pension of Rs X. After 19 yrs, my pension is Rs 10X. Without touching my return from investment, I can purchase higher quantity of goods and services and my quality of life has been enhanced significantly. As a parent wishing to share my wealth with my only child settled in USA, I gift him a substantial amount every year.
I have transitioned from zero tax on capital gains to 10 per cent and now to 12.5 per cent. But when I look at what is left balance on the table, it has been increasing progressively. I find no reason for me or others similarly placed investors to complain for fulfilling my social responsibility.

- Col. Y M Aggarwal, SM (Retd)

I'm sure people will not mind paying this higher tax provided, we get back in return what we are being taxed for. We have to make our own arrangements for power, clean drinking water, local transport, not to forget, healthcare. Can you imagine we have to pay GST on the Mediclaim policy also?

Sorry, I don't agree with your analysis. You cannot always receive. You have a moral obligation to the society. Do you think these taxes will go down? My only source of income is bank deposits and some gains if I make them from the markets and with the interest rates coming down and cost of medicines going north how will I survive? I don't have any pension nor ancestral property so where do I go? When STT was introduced, the LTCG was zero and it was treated as advance tax but now, please do the numbers.

- Sudhin Bathija

I agree with you completely and congratulate you for writing this piece. The bigger picture is often lost and people get so worked up at the nitty gritty small things. Your article will hopefully get some of these people to open their eyes and start thinking what investing is all about and in the bargain country building. A tinge of positivity and patriotism will do no harm to our society which has become a complaining machine and never seem to be happy at what the country is doing and where its heading. Its time to shed this attitude and become more positive and look at India's growth story.

As for the STT, people lose much more money on their trades than on the STT! It's just a measure to dampen some initial investors in this market. The real problem is the addiction of the traders who trade in this market and the catalyst for such behaviour. If you don't help yourself then no one can help you!

A note very well written!

- Sanjeev Sinha

This article was originally published on August 15, 2024.