Budget 2024: Capital pains and other long-term letdowns

My fellow capital-gains-tax sufferers,

To be honest, at this very moment, my view on the Union budget is a big, fat “hmmmmm…” Hopefully as I write this edition of Contramoney, I will declutter my thoughts and a theme will emerge.

I sat through the finance minister’s speech with limited attention, thinking about what has been strategically held back for the end. Then, on cue, I readjusted physically and mentally, hoping my renewed focus would somehow forestall any tax adventurism in the FM’s mind.

Unfortunately, though, she had a plan this year, one that she unleashed on us investors like a thousand tiny cuts. It triggered a whole bunch of thoughts, the first of which was: WHY?

While it’s best to leave the finer points of taxation to legal experts, I’m left wondering why the finance minister would increase the tax on long-term capital gains. Does India not need long-term capital anymore?

Penalise punters, incentivise investors

I have argued in earlier editions of Contramoney that the government needs to more to encourage the formation of long-term ‘risk capital’. One way to do this would be to lower the capital gains tax for holding periods beyond, say, five years. In fact, the best tax rate for such a long tenure is perhaps zero.

What we have been handed instead is a penalty – albeit a mild one – for being a long-term investor.

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Why not increase short term capital gains tax by a lot more instead? Speculative capital benefits only the punter. What use is that in building a developed India?

To give credit where it’s due, the finance minister did increase the short-term capital gains tax, which should discourage traders.

But the point is that this should have been the source of additional taxes that the government will now generate from long-term capital gains.

Penalise the punter, incentivise the investor. That should be the mantra.

Less market, more casino

Also, why increase only the securities transaction tax (STT) on futures and options? While a four-fold increase in STT for options trading, India’s new favourite pastime, counts for something, I wonder if it would not have been wiser to tax it even more – maybe by disallowing set-offs and other benefits.

I think it's good that something has been done to curb options trading. But – and I am no trader, so take this with a pinch of salt – I believe this is just a small step and will do little to deter traders.

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The finance minister should have come at options trading from multiple angles, including taxing income from these products. The opportunity has been missed, and I fear nothing stands in the way of India becoming the world’s options gambling hub.

These are the three questions that we all will think over for some time to come. At this point, I’m left wondering if those who prepared the budget were thinking in the right direction at all.

This budget is a continuation of the previous government’s policies, and that’s why even the big announcements don’t matter. We already know the plans. Worse, we heard them all in the interim budget, too.

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What mattered most to longer-term investors, and was held back until the very end of the speech, proved a huge disappointment. And that’s not good for Bharat.

Something for all of us to think about. Hmmmmm…

Rahul Goel is a finance and publishing professional with over 25 years of experience in the industry. You can tweet him @rahulgoel477.

You should always consult your personal investment advisor/wealth manager before making any decisions.