The Daily Brief

The episode of the Daily Brief hosted by Bhavya Dua features an in-depth discussion on the recent Union budget with guests Vishwajit Sonagra, CEO of Quico, and Dinesh Pai, chief strategist at Rainmatter Investments. Key highlights include changes in personal taxation, such as the increase in standard deduction and the shift towards a single tax regime. The budget also introduces notable adjustments in capital gains taxes, with long-term gains on listed securities rising to 12.5% and short-term gains to 20%. Additionally, the abolishment of the angel tax and reduced corporate tax for foreign companies aim to bolster the startup ecosystem and attract multinational investments.

• The finance minister announced changes in the tax structure under the new regime.
• Increase in the standard deduction from Rs. 50,000 to Rs. 75,000.
• Income taxpayers can save Rs. 17,500 in tax liability due to these changes.
• Move towards having a single tax regime, with the old regime likely being phased out.

"One of the things that finance minister mentioned was that they are planning to move away from two regimes onto having a single regime."

• The government aims to simplify the tax system by eventually eliminating the old tax regime.

"More than 80% people have already opted into new regime, which is the default regime now, by the way."

• The majority of taxpayers have already switched to the new tax regime, which is now the default.

"The standard deduction, which was earlier used to be Rs. 50,000, is now Rs. 75,000."

• The increase in standard deduction aims to provide more relief to taxpayers under the new regime.

"The Rs. 17,500 is essentially the reduction in tax liability due to slab changes and increase in standard deduction."

• The Rs. 17,500 savings come from changes in tax slabs and the increased standard deduction.

• Long-term capital gains (LTCG) tax on listed securities increased from 10% to 12.5%.
• Exemption limit for LTCG increased from Rs. 1 lakh to Rs. 1.25 lakh.
• Short-term capital gains (STCG) tax increased from 15% to 20%.
• New rules introduce complexity in tax filing, requiring bifurcation of transactions before and after 23 July.

"The long-term capital gains has been increased from 10% to 12.5%, which is why maybe momentarily market reacted little negatively to it."

• Increase in LTCG tax rate led to a temporary negative reaction in the market.

"The earlier exemption of one lakh has also been increased to 1.25 lakhs."

• The increase in the exemption limit aims to offset the higher LTCG tax rate to some extent.

"Short-term capital gains now will be tested 20% instead of 15%."

• The hike in STCG tax rate affects short-term investors, increasing their tax liability.

"You'll have to bifurcate your transactions before the 23 July and after the 23 July."

• New rules require taxpayers to separate transactions based on the date for accurate tax calculation.

• LTCG tax on unlisted securities reduced from 20% to 12.5%.
• The holding period requirement for long-term capital gains reduced from 36 months to 24 months.
• Short-term capital gains on unlisted securities remain taxed at slab rates.

"Earlier there were certain type of assets where if you hold them for more than 24 months, for example, real estate, or certain unlisted securities, those were tested 20%. Now that has been reduced to 12.5%."

• The reduction in LTCG tax rate on unlisted securities aims to incentivize long-term investments in such assets.

"They abolished the 36-month rule. So now there is only 24-month rule."

• Simplification of holding period requirements makes it easier for taxpayers to qualify for long-term capital gains.

"Long term capital gains on unlisted securities used to be 20%. The listed securities used to be 10%. Right. So it reduced from 20% to 12.5%."

• The reduction in LTCG tax rate on unlisted securities aligns it more closely with the rate for listed securities, albeit still higher.

• The budget introduces significant changes in personal and capital gains taxation.
• The move towards a single tax regime simplifies the tax structure.
• Changes in capital gains tax rates and holding periods aim to balance tax burdens and incentivize long-term investments.
• New rules introduce complexity in tax filing, requiring careful bifurcation of transactions based on specific dates.

• Capital assets divided into three categories: securities, real estate, and other capital assets.
• Securities traded on exchanges and paying STT are taxed under section 112 at 12.5% for long-term gains (previously 10%).
• Real estate long-term capital gains reduced from 20% to 12.5%, short-term gains remain at slab rate.
• Other capital assets (e.g., foreign securities, mutual funds, ETFs) long-term gains reduced from 20% to 12.5%, short-term gains remain lower.

"Securities is anything that you are trading on exchanges, right, where you are paying STT. So anything that you are trading on exchanges paying STD is essentially long term capital gains under section 112. And it will be taxed at 12.5%. Now, it was earlier used to be 10%."

• Explanation: Securities traded on exchanges and paying STT are now taxed at 12.5% for long-term capital gains, previously 10%.

"Now real estate, capital gains, right. Which are also capital assets. So if you sold real estate here, long term used to be 20%, now it will be 12.5%. And short term will still remain slab rate."

• Explanation: Real estate long-term capital gains tax reduced from 20% to 12.5%, short-term gains remain at slab rate.

"In that case, the long term capital gains has been reduced from 20% to 12.5% and the short term remains slower."

• Explanation: Other capital assets such as foreign securities now have long-term gains taxed at 12.5%, reduced from 20%.

• Indexation benefit presumed gone as it was only available with the 20% long-term rate.
• Applies to all asset classes previously taxed at 20% with indexation.

"You can presume so because earlier indexation was only available with the 20% long term rate. First of all, it was only available on long term gains. It was available on the 20% tax rate. Now, since the 20% tax rate itself goes away, you can presume that indexation benefit also goes away."

• Explanation: Indexation benefit presumed eliminated as it was tied to the 20% long-term capital gains rate, which is now reduced to 12.5%.

"It goes away for anything that was earlier taxed at 20% with indexation."

• Explanation: Indexation benefit is eliminated for all asset classes previously taxed at 20% with indexation.

• Angel tax abolished for all assets across all taxpayers.
• Angel tax was introduced in 2012 to prevent circulation of unaccounted funds through startups.
• Tax was on the delta between issue price and fair market value of equity raised by startups, taxed at 31%.

"Angel tax obviously has been a hugely debated topic in the startup ecosystem, especially in Indian context, because there is no parallel to angel tax anywhere across any of the tax regimes."

• Explanation: Angel tax was unique to India and heavily debated within the startup ecosystem.

"Basically, it says that if a startup is raising equity, or equity capital, which is at a valuation higher than the face value itself, or higher than essentially the issue or the fair market value of the startups itself, that additional delta of that issue, price versus the fair market value, is taxed at around 31% as an income for the startups itself."

• Explanation: Angel tax was levied on the difference between the issue price and fair market value of equity raised by startups, taxed at 31%.

"But why was it affecting the investors was because they realized that if you're doing an investment in a company, and if you're putting in, say, rs100, if rs30 of that goes away in taxes, rather than the company having access to the rs30 for growth and whatever, and it was an issue."

• Explanation: Angel tax affected investors by reducing the funds available for startup growth, as a significant portion was taken as tax.

• Abolishing angel tax removes confusion and deliberation around valuation methods.
• Encourages more investments in early-stage startups by HNIs, family offices, and angel investors.
• Aligns unlisted securities with listed securities by reducing long-term capital gains tax to 12.5%.

"All the confusion goes away. So it's absolutely great for the ecosystem itself. The investors are obviously lodging it on social media, etc."

• Explanation: Abolition of angel tax clears confusion around valuation methods, positively received by investors.

"So we'll see more startups being funded by people, HNI's family officers, in that initial risk phase of it, where then VC's can come in and kind of underwrite more of that growth stage of risk."

• Explanation: More early-stage investments expected from HNIs and family offices, allowing VCs to focus on growth-stage investments.

"So that, coupled with now long term capital gains reduced from 20% to 12.5% brings unlisted securities at par with listed securities, which I think is a very strong underlying statement."

• Explanation: Reduction of long-term capital gains tax to 12.5% for unlisted securities aligns them with listed securities, a significant change.

• Government initiatives to support startups include funder funds, seed funds, and sector-specific incentives.
• Encourages re-domiciling of startups to India by providing a more favorable tax environment.
• Government procurement from startups to boost the ecosystem.

"Obviously they supported startups in various ways. The funder funds, various seed funds, they've obviously now announced a lot more of those in incentives for space sector, for example, with 1000 crore fund that is specifically set up."

• Explanation: Government has various initiatives to support startups, including funder funds, seed funds, and sector-specific incentives.

"Even a lot of startups are re domiciling and the government wants them to re domicile their registered offices back to India."

• Explanation: Government encourages startups to re-domicile to India by creating a more favorable tax environment.

"There was an announcement where the government is going to now at least keep certain slab of even tendering as well as contracts and certain amount of budgets around where they're procuring stuff from to also startups."

• Explanation: Government procurement from startups is a move to recognize and support the startup ecosystem.

• Corporate tax rate in India has been reduced from 40% to 35%.
• This move is expected to attract multinational corporations to set up operations in India.
• It aligns with India's strategy to position itself as an alternative to China in the global supply chain ("China plus one").

"I think it's a welcome move. It will bolster India's claim on, you know, whatever you want to call China plus one."

• The reduction is seen as favorable for those looking to build, manufacture, or make in India.

• Discussion on OECD taxation and its implications for MNCs operating in multiple territories.
• Importance of aligning India's tax regime with international standards to facilitate global trade.
• Trade agreements with countries like Australia and Britain necessitate a compatible tax regime.

"India is increasingly getting woven into international trade and I think as we sign more and more trade agreements... having a tax regime at par with international tax regimes would be really helpful to even the playing field."

• Harmonizing tax policies with global standards is seen as beneficial for India's involvement in international trade.

• Introduction of a new NPS scheme called "NPS Watsalin" for investing in children's future until they turn 18.
• NPS is compared to the 401k scheme in the US, which holds a significant portion of American wealth.
• The scheme focuses on defined contributions and is market-linked, managed by reputable financial institutions.

"NP's is kind of one of the most underappreciated schemes... It's also market linked. So your investments are managed by all the bona fide financial institutions that we otherwise invest with."

• Recent changes include bringing parity in NPS deductions for private and government employees, now both at 14% of basic plus DA.
• Advocates for NPS to be offered as an alternative to the Employee Provident Fund (EPF), which is more fixed-income oriented.

"What I would love to see is government offer it as an alternative to employers where employer and employees can together decide whether they want to go into a fixed income scheme like EPF or they want to go into NP's, which is more market driven."

• Withdrawal of the 2% TDS on mutual funds.
• Clarification needed on the specifics of TDS changes on mutual funds.

"If the AMC repurchases the MF units... there used to be 2% TDS on the repurchase of those MF units. That has been, in fact, withdrawn."

• STT on F&O transactions proposed to be increased from 0.2% to 0.01%.
• This change is driven by concerns over retail participation in F&O as speculative rather than value-adding activities.

"There is at least a little bit of a concern in terms of retail participation in FNO... I think the increase in STT is a part of that concern."

• The increase in STT is seen as a deterrent to speculative trading, aiming to stabilize the market.

• Taxation shift for buybacks: now taxed in the hands of the recipient investor rather than the company.
• This is similar to the previous change where dividend distribution tax was abolished and dividends were taxed in the hands of the recipient.

"Buyback capital gains were earlier exempt in the hands of recipient. Now they'll be taxable."

• Uncertainty remains on whether buyback gains will be taxed as capital gains or similar to dividend income.
• Potential impact includes reduced participation from retail investors due to the new tax implications.

"It used to be a great kind of tool as a corporate action for a lot of large corporations to, instead of giving out dividends to re-acquire stocks, now I think you will see less participation from retail investors because there is a taxability on it."

• Reduction of customs duties on gold and silver to 6% and on platinum to 6.4%.
• Impact on retail investors considering investments in precious metals.

"Customs duties on gold and silver, even, they have been reduced to 6% and for platinum, 6.4%."

• The reduction in customs duties makes investments in precious metals more attractive for retail investors.

• Rationalization of long-term capital gains tax to 12.5% for unlisted securities.
• Positive impact on the startup ecosystem in India.
• Foreign investors can reclaim taxes paid in India as tax relief in their domicile jurisdiction.

"The rationalization of long term capital gains, reducing it to 12.5% in case of unlisted securities, I think will be a huge boost to startup ecosystem in India."

• Lower capital gains tax encourages investments in startups, fostering growth and employment.

"Foreign investors could still kind of go back to their domicile tax jurisdiction and still can still reclaim those taxes paid in India as a tax relief."

• Foreign investors benefit from tax treaties, making India an attractive investment destination.

• Continuous push towards the new tax regime.
• Encouragement for taxpayers to switch to the new regime for simplification.

"The other important statement in my opinion from finance minister is kind of continuous reinforcement that old regime is going away, new regime is the new normal if you want to take it as."

• The government aims to streamline taxation by promoting the new regime.

• Focus on MSMEs (Micro, Small and Medium Enterprises) and direct funding routes.
• Credit guarantee schemes to support MSMEs.
• Emphasis on employment creation and upskilling.

"There was lots in the budget for MSMEs themselves. I think the government has said it's either Sidbi or NabaRD. I think they'll be setting up branches."

• Government initiatives to support MSMEs through funding and credit guarantees.

"The employment creation in itself through startups and the vibrant IPO market in India."

• Startups and MSMEs play a crucial role in job creation and economic growth.

• Benefits to common Indians through changes in tax slabs and standard deductions.
• Majority of taxpayers have taxable income less than 15 lakh.

"More than 80 90% people file their income tax return with taxable income less than 15 lakh."

• Tax reforms are aimed at providing relief to the majority of taxpayers.

"Changes to reduction in taxes on salary always, always helps common men."

• Reduction in salary taxes benefits the common man, making it a people-friendly budget.

• Increase in direct tax collections from individuals.
• Higher tax compliance due to formalization of the economy and connectivity of Aadhaar and PAN.
• Growth in TDS (Tax Deducted at Source) collections and self-assessment tax.

"Direct tax collection from individuals going up. What has happened is because of, because of the kind of organization, the formal organization of our economy, the connectivity of Aadhaar and PAN and hence all the financial transactions are now within the ambit of income tax department."

• Enhanced compliance and formalization have led to increased individual tax collections.

"Self assessment, investment tax and advanced tax collections have doubled in last four or five years."

• Growth in self-assessment and advance tax collections indicates better compliance and higher revenues.

• Comprehensive coverage of key points in the Union Budget.
• Emphasis on personal tax reforms, support for startups and MSMEs, and overall economic growth.

"Change in tax slab rates under the new tax regime, increase in the standard reduction under the new tax regime, abolishment of angel tax changes in short term and long term capital gains, reduction of customs duty on gold, silver and platinum."

• The budget includes significant tax reforms and measures to promote investments and economic development.