Middle Class Cheated In Budget?

FinnovationZ by Prasad

23 Jul 202407:52

Summary

TLDRThe video discusses the latest budget and its impact on various sectors, particularly middle-class investors. It highlights changes in long-term capital gains (LTCG) taxes, such as increased holding periods and altered tax rates, which could burden investors more than before. While some sectors like gold may see reduced customs duties, other areas like real estate face increased taxation due to the removal of indexation benefits. The video critiques the government's decisions, suggesting they may not meet public expectations and could negatively impact the market and investor behavior in the future.

Takeaways

📉 The budget seems to have disappointed many, especially the middle class, as they expected more benefits but faced higher tax burdens.
🌾 Sectors like agriculture and manufacturing might benefit from the budget, but the middle class is expected to bear a significant tax burden.
💼 The long-term capital gains tax (LTCG) has been increased from 10% to 12.5%, and the holding period for long-term investments has been extended from one year to two years.
📈 The indexation benefit, which adjusted asset cost for inflation to reduce taxable gains, has been removed, potentially increasing tax liabilities for real estate investors.
🏦 The Securities Transaction Tax (STT) has been doubled, which might affect the number of long-term investors in the share market.
📉 The budget's changes have led to a significant drop in the stock market, with many companies across different sectors performing poorly.
💎 The customs duty on gold has been reduced from 15% to 6%, which might make gold more affordable but doesn't seem to offer much benefit to consumers.
🚫 The Angel Tax, which was levied on startups selling shares at a price higher than their valuation, has been completely abolished, benefiting startups.
📉 Corporate tax for foreign companies has been reduced from 40% to 35%, still higher than domestic companies, which might not be as attractive as expected.
⏳ The budget's impact on real estate is expected to be negative due to the removal of indexation benefits and the potential increase in capital gains tax, which might lead to problems in the real estate market in the coming times.

Q & A

What was the general sentiment of the budget discussed in the script?
-The script suggests a sense of disappointment and disparity, particularly among the middle class, due to the budget's perceived lack of benefits and the increased tax burden.
How does the script describe the impact of the budget on sectors like agriculture and manufacturing?
-The script indicates that sectors such as agriculture and manufacturing might benefit from the budget, while the middle class is expected to face a significant tax burden.
What changes were made to the Long Term Capital Gains Tax (LTCG) in the budget according to the script?
-The script explains that the LTCG tax rate has been increased to 12.5% from the previous rates, which were 10% for equity and 20% for other financial assets like real estate and gold. Additionally, the holding period for long-term investments has been extended from one year to two years.
How does the script analyze the effect of indexation benefits on real estate investments post the budget?
-The script suggests that the removal of indexation benefits will likely result in a higher tax liability for real estate investors, as the taxable gains will be calculated based on the actual purchase price rather than the indexed cost.
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What was the previous and new rate for the Securities Transaction Tax (STT) as discussed in the script?
-The script mentions that the STT, which was previously at 12.5%, was expected to be reduced but was actually doubled, remaining at 12.5% for long-term and increasing to 20% for short-term capital gains tax.
How does the script comment on the reduction of the corporate tax rate for foreign companies?
-The script notes that the corporate tax rate for foreign companies has been reduced from 40% to 35%, which is still considered high compared to the 25% rate for domestic companies.
What was the script's commentary on the removal of Angel Tax?
-The script positively remarks on the complete removal of Angel Tax, which was a tax levied on startups when they sold shares at a price higher than their valuation, and is seen as a benefit for startups.
What are the potential implications of the budget on the real estate market according to the script?
-The script anticipates potential problems for the real estate market due to the increased tax burden on investors and the removal of indexation benefits, which could lead to a decrease in the number of investors.
How does the script discuss the impact of the budget on the middle class investors?
-The script suggests that middle-class investors, who were expecting gains, will now face a heavier tax burden due to increased capital gains tax rates and the removal of certain benefits.
What is the script's view on the government's approach to managing the expectations of the people from the budget?
-The script advises against setting high expectations from the budget, echoing the sentiment that it's better to be prepared for disappointment, as the budget may not meet everyone's expectations.

Outlines

00:00

📊 Economic Impact of Budget on Middle Class and Investments

The paragraph discusses the Indian budget's implications for the middle class and various sectors. It suggests that sectors like agriculture and manufacturing might benefit, but the middle class could face disappointment. The speaker notes changes in tax policies, particularly the long-term capital gains tax (LTCG), which has been increased from 10% to 12.5% with a holding period extended from one to two years. The impact of these changes on different asset classes like equity, real estate, and gold is analyzed, with a focus on how they might affect investors. The paragraph also touches on the removal of indexation benefits for real estate, potentially leading to higher tax liabilities for investors. The discussion concludes with the anticipation of market reactions to these budgetary changes.

05:01

💼 Corporate Tax Changes and Market Reactions

This paragraph delves into the budget's effects on corporate taxes and the broader market. It highlights the reduction in corporate tax rates for foreign companies from 40% to 35%, which is still higher than the domestic rate but is an improvement. The paragraph also discusses the complete removal of angel tax, which is beneficial for startups. Additionally, it mentions the potential decrease in the price of gold due to a reduction in customs duty from 15% to 6%, and the impact of these changes on the gold market and illegal gold smuggling. The speaker anticipates that the real estate market may face challenges due to increased capital gains tax and the removal of indexation benefits. The paragraph concludes with a general sentiment of caution regarding the budget's long-term effects on the economy and the importance of managing expectations.

Mindmap

Keywords

💡Budget

The term 'Budget' refers to a government's financial plan detailing proposed revenues and expenditures for a financial year. In the video, the budget is discussed in the context of its impact on various sectors of the economy, such as agriculture and manufacturing, and its effects on middle-class taxpayers. The speaker mentions that the budget has 'disputed' elements, suggesting that it has both positive and negative implications for different stakeholders.

💡Disinvest

To 'disinvest' means to sell or reduce one's investment in a particular asset or sector. In the video, the speaker uses the term to describe the government's approach to certain sectors, implying that they might be reducing their financial support or involvement. This could have significant implications for the future of those sectors and the economy as a whole.

💡Middle Class

The 'Middle Class' typically refers to individuals or families who earn a moderate income, falling between the working class and the wealthy. In the video, the middle class is mentioned in relation to the budget's impact, suggesting that this demographic may face financial challenges or changes due to the budgetary decisions. The speaker indicates that the middle class might have to 'save' more, hinting at potential tax implications.

💡Equity

In a financial context, 'Equity' can refer to the value of an asset or ownership interest in a company. The video discusses changes in the tax rates for equity investments, such as the increase in the Long Term Capital Gains (LTCG) tax from 10% to 12.5%. This change is significant for investors as it directly affects their returns on equity investments.

💡Long Term Capital Gains (LTCG)

LTCG refers to the profit made from the sale of a capital asset, such as stocks or real estate, that has been held for more than a specified period (usually one year). The video explains that the tax rate for LTCG has been increased, which could influence investment strategies and the attractiveness of long-term investments in assets like equities and real estate.

💡Holding Period

The 'Holding Period' is the duration for which an investor holds onto an investment before selling it. The video mentions that the holding period for long-term investments has been extended from one year to two years, which could affect how gains are taxed and thus influence investment decisions.

💡Real Estate

Real estate encompasses land and the buildings on it, and it is a significant asset class for many investors. The video discusses the impact of the budget on real estate investments, particularly the changes in LTCG tax rates and the removal of indexation benefits, which could make real estate investments more costly and less attractive.

💡Indexation

Indexation is an adjustment made to the cost of an asset to account for inflation, which can reduce the taxable gain and thus the tax liability. The video explains that the benefits of indexation for real estate have been removed, which means that the tax on capital gains from real estate sales could increase significantly.

💡STT (Securities Transaction Tax)

STT, or Securities Transaction Tax, is a tax levied on the sale of securities. The video discusses the introduction of STT in 2004 and its implications for investors. The speaker suggests that the presence of STT might have contributed to the decline in the stock market, as it adds to the cost of trading securities.

💡Corporate Tax

Corporate Tax is the tax that corporations must pay on their profits. The video mentions the reduction in corporate tax rates for foreign companies, which could make the country more attractive for foreign direct investment. However, the speaker also points out that the tax rate is still relatively high compared to other jurisdictions.

💡Angel Tax

Angel Tax is a tax levied on investments made by angel investors in startups, particularly when the investment valuation seems artificially high. The video explains that the Angel Tax has been completely removed, which is seen as a positive move for startups and their investors, as it could encourage more investment in the startup ecosystem.

Highlights

The budget seems to be a mix of expectations, with some sectors like agriculture and manufacturing set to benefit.

The middle class is expected to bear a significant burden from the budget, with a heavy tax impact.

Changes in the Long Term Capital Gains Tax (LTCG) from 12.5% are discussed, affecting investments.

The holding period for long term investments has been extended from one to two years, impacting tax calculations.

Equity investors previously enjoyed a 10% LTCG tax rate, which has now increased to 12.5%.

Real estate and gold investments, previously taxed at 20%, will also see a tax rate increase to 12.5%.

The removal of indexation benefits from real estate investments could lead to higher effective tax rates.

The expectation that real estate companies' shares would fall due to the changes in tax policies.

The introduction of the Securities Transaction Tax (STT) in 2004 and its impact on the market.

The recent decision to retain both STT and LTCG, contrary to expectations of reduction.

The increase in Short Term Capital Gains Tax (STCG) from 15% to 20%, affecting investors.

The market reaction to the budget, with a significant crash and poor performance across various sectors.

The reduction in custom duty on gold from 15% to 6%, potentially making gold cheaper for consumers.

The complete removal of Angel Tax, benefiting startups by eliminating a tax on valuations deemed artificially high.

A reduction in corporate tax rates for foreign companies, making India more attractive for foreign direct investment.

The potential for increased tax evasion and illegal activities due to higher tax rates.

The advice to not hold high expectations from the budget, aligning with the wisdom of elders.

The overall sentiment that the budget may not have met the expectations of the middle class and investors.