Stock markets in India are presently trading on a negative note. Sectoral indices are trading in the red with stocks in the banking sector and capital goods sector witnessing maximum selling pressure.
The BSE Sensex is trading down 245 points (down 0.7%) and the NSE Nifty is trading down 81 points (down 0.8%). The BSE Mid Cap index is trading down by 0.9%, while the BSE Small Cap index is trading down by 1.2%. The rupee is trading at 64.01 to the US dollar.
In the news from macroeconomic space, as per an article in the Economic Times, the Income Tax (IT) department has issued a set of FAQs to clear doubts about the long-term capital gains tax levied on shares in the Budget, clearly providing that the tax will be levied on shares sold after 1st April 2018.
In the Union Budget 2018 announced last week, Finance Minister Jaitley announced a long-term capital gains tax of 10% on sales of listed securities on gains over Rs 1 lakh. This came in as a surprise for the market. The market at the worse was expecting a change in the definition of long term capital gains.
Currently, sale of listed securities beyond a period of one year are exempt from taxation. The market was expecting this period of one year to be extended to two or three years.
However, as per the current proposal if you sell your equity within the period of one year, you would have to pay the usual 15% short term capital gain on your gains. For period beyond one year, you will have to pay a long-term capital gain of 10% without the benefit of indexation.
Nevertheless, the tax imposed is still lower than the short-term capital gains tax and a third of what you would pay if your earnings are in the highest tax bracket from any or all other sources.
Also, with the “grandfathering” that the government has allowed, the new levy should hurt less than previously thought. Put simply, this means there is no retrospective taxation.
For example, if an equity share is purchased six months before January 31, 2018 at Rs 100 and the highest price quoted on January 31, 2018 for this share is Rs 120, there will be no tax on the gain of Rs 20 if this share is sold after one year from the date of purchase.
However, any gain in excess of Rs 20 earned after 31st January, 2018 will be taxed at 10% if this share is sold after 31st July, 2018.
Speaking of taxation, one should note that there has been a large increase in registered indirect and direct taxpayers lately, as can be seen from the chart below:
Since the launch of Goods and Services Tax (GST), there were 9.8 million unique GST registrants, an increase of 50% compared to the previous tax regime. There has also been a large increase in voluntary registrations, especially by small enterprises that buy from large enterprises wanting to avail themselves of input tax credits.
Similarly, after November 2016, 10.1 million tax filers were added compared to an average of 6.2 million in the preceding six years. Further analysis suggests that new filers reported an average income, in many cases, close to the income tax threshold of Rs. 2.5 lakh, limiting the early revenue impact. As income growth pushes many of the new tax filers in time over the threshold, the revenue dividends should increase robustly.
These changes can have profound effect on the Indian economy. With the increasing tax base, the government will have a significant amount of resources to spend on infrastructure, health and education, While the fiscal deficit will be stable.
As organized players gain market share, it will begin to reflect in corporate earnings and stock prices too.
In the news from currency markets, the dollar is witnessing buying interest today. Gains are seen as the currency rallied on upbeat US jobs data, which sent bond yields surging on the prospects of increasing inflation and hammered equities.
The dollar index against a basket of six major currencies gained on Friday, when the US payrolls report showed wages growing at their fastest pace in more than 8 years and fueling inflation expectations. It has continued the uptrend this week as well.
To keep a tab on the movements in the dollar and other currencies, you can read the stock market commentary from the Daily Profit Hunter team. Their commentary tracks the developments in the global economy as well as stock, currency, and commodity markets.
This article was originally published in English at www.equitymaster.com
Read the complete Indian stock market update. For the terms of use, go here.
The BSE Sensex is trading down 245 points (down 0.7%) and the NSE Nifty is trading down 81 points (down 0.8%). The BSE Mid Cap index is trading down by 0.9%, while the BSE Small Cap index is trading down by 1.2%. The rupee is trading at 64.01 to the US dollar.
In the news from macroeconomic space, as per an article in the Economic Times, the Income Tax (IT) department has issued a set of FAQs to clear doubts about the long-term capital gains tax levied on shares in the Budget, clearly providing that the tax will be levied on shares sold after 1st April 2018.
In the Union Budget 2018 announced last week, Finance Minister Jaitley announced a long-term capital gains tax of 10% on sales of listed securities on gains over Rs 1 lakh. This came in as a surprise for the market. The market at the worse was expecting a change in the definition of long term capital gains.
Currently, sale of listed securities beyond a period of one year are exempt from taxation. The market was expecting this period of one year to be extended to two or three years.
However, as per the current proposal if you sell your equity within the period of one year, you would have to pay the usual 15% short term capital gain on your gains. For period beyond one year, you will have to pay a long-term capital gain of 10% without the benefit of indexation.
Nevertheless, the tax imposed is still lower than the short-term capital gains tax and a third of what you would pay if your earnings are in the highest tax bracket from any or all other sources.
Also, with the “grandfathering” that the government has allowed, the new levy should hurt less than previously thought. Put simply, this means there is no retrospective taxation.
For example, if an equity share is purchased six months before January 31, 2018 at Rs 100 and the highest price quoted on January 31, 2018 for this share is Rs 120, there will be no tax on the gain of Rs 20 if this share is sold after one year from the date of purchase.
However, any gain in excess of Rs 20 earned after 31st January, 2018 will be taxed at 10% if this share is sold after 31st July, 2018.
Speaking of taxation, one should note that there has been a large increase in registered indirect and direct taxpayers lately, as can be seen from the chart below:
A Large Increase in Registered Indirect and Direct Taxpayers
Since the launch of Goods and Services Tax (GST), there were 9.8 million unique GST registrants, an increase of 50% compared to the previous tax regime. There has also been a large increase in voluntary registrations, especially by small enterprises that buy from large enterprises wanting to avail themselves of input tax credits.
Similarly, after November 2016, 10.1 million tax filers were added compared to an average of 6.2 million in the preceding six years. Further analysis suggests that new filers reported an average income, in many cases, close to the income tax threshold of Rs. 2.5 lakh, limiting the early revenue impact. As income growth pushes many of the new tax filers in time over the threshold, the revenue dividends should increase robustly.
These changes can have profound effect on the Indian economy. With the increasing tax base, the government will have a significant amount of resources to spend on infrastructure, health and education, While the fiscal deficit will be stable.
As organized players gain market share, it will begin to reflect in corporate earnings and stock prices too.
In the news from currency markets, the dollar is witnessing buying interest today. Gains are seen as the currency rallied on upbeat US jobs data, which sent bond yields surging on the prospects of increasing inflation and hammered equities.
The dollar index against a basket of six major currencies gained on Friday, when the US payrolls report showed wages growing at their fastest pace in more than 8 years and fueling inflation expectations. It has continued the uptrend this week as well.
To keep a tab on the movements in the dollar and other currencies, you can read the stock market commentary from the Daily Profit Hunter team. Their commentary tracks the developments in the global economy as well as stock, currency, and commodity markets.
This article was originally published in English at www.equitymaster.com
Read the complete Indian stock market update. For the terms of use, go here.
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