Dalal Street, the nerve center of Mumbai, is usually a noisy place, with boisterous punters bustling about like busy bees. However, on Monday, 29th February, there was pin-drop silence throughout the locality. Investors were on tenterhooks that Arun Jaitley, NAMO’s right hand man, would indulge in the tomfoolery of imposing tax on long-term capital gains. Everyone knew that if Jaitley did that, it was game over for the Indian stock market.
Investors’ worst fears did come true when Jaitley announced that dividends in excess of Rs. 10 lakh would be taxed in the hands of shareholders (despite the fact that the paying company already pays corporate tax and DDT). At that stage, the Sensex plunged a massive 600+ points, causing severe palpitations to all investors. However, thereafter, there was a miraculous recovery. On Tuesday, the Sensex surged a massive 777 points while today, it kept pace with a surge of 463 points.
Some pundits like Porinju Veliyath were quick to announce that the Budget is a good one and that all woes have come to an end.
Market correction is over; India's structural bull market & high growth economy to gradually get back on to track!
— Porinju Veliyath (@porinju) March 2, 2016
However, whether Porinju’s optimism is based on an objective analysis of the macro-economic factors or whether it is a sentiment expressed instinctively and by force of habit is not known.
In the past, Porinju has demonstrated a penchant for making ultra-bullish predictions and so one has to take his sayings with a pinch of salt.
Saurabh Mukherjea was not at all impressed by the Budget. It is “nothing short of disappointing” he said in a scathing tone and added that the Budget is “no different than that of the UPA”.
Saurabh’s sore point appears to be that the capex, which had seen a 21% growth in last year’s budget, has been slashed to 4% in the current year. This will result in a flat growth for the economy, he opined.
“We still maintain our Sensex target at 22,000” Saurabh said in an ominous tone.
He added the grim warning that he would “lose his sleep” if money market rates keep tightening and if China keeps depreciating its currency.
Ajay Srivastava of Dimensions Consulting was also not impressed with the Budget. He warned that there are no “fundamental changes” ushered in by the Budget which warrants an optimistic view. He warned investors not to “jump into the fray” but to take advantage of the euphoria to rebalance their portfolio and get rid of junkyard stocks.
Daljeet Kohli is also circumspect about the situation. In his special report, Daljeet claimed that the Budget is “lacking provisions to spur growth & revive economy”. He said that he expected “out of box thinking” ideas on Bank recapitalization, providing impetus to capex cycle etc. “Our fear of budget being more populist than our expectations has actually played out” Daljeet lamented.
Daljeet also sounded a cautious note by stating “In the past many months our markets have been reeling under heavy selling pressure from FIIs. We do not believe this budget does anything to change that trajectory. It will neither increase nor decrease their selling meaning, no respite from pressure on markets. We do not see any major impact of this budget on corporate earnings, hence not much change in fundamentals”.
Raamdeo Agrawal appeared to be irritated with Jaitley’s quixotic proposal to tax dividends. He called it “triple taxation of profits” and said it is “highly avoidable”. He added that the measure would be “detrimental to small shareholders” because companies would now cut down on dividend payments.
The bottom line of the advice from the pundits, from the perspective of novice investors like you and me, is that we have to also be cautious and watch our backs. We must ensure that we don’t get carried away by over-optimism and we must be careful that we buy only the best quality stocks. Of course, as Ajay Srivastava advised, we must use the opportunity to palm off our junkyard stocks to our unsuspecting peers!
This is budget which is anti private sector employees as Modi govt now want to loot EPF money by giving them two choices. Either withdraw your 60 % of PF money and pay taxes to Fund Pond Digging and Filling Scheme called MENREGA or take annuities from Foreign insurance compnies and get just 6% taxable return..I think it is total foolishness to link MENREGA to agriculture ..Rather due to MENREGA free pension, there is shortage of workers in agriculture and industry. MENRRGA is advetsaly effecting agriculture and industry .Similarly taxing PF contribution of more than 1.5 lac in hands of employees is another anti employees step. More over with heavy increase in burden of service tax ,govt will break the bones of public.Modi govt has already created a history in looting Indian consumers of aprox 70000 Crore as it did not pass benefit of lower crude. So this budget is anti middle class and anti farmer. This budget will only help those who want to live on govt doles like parasites.
“This budget will only help those who want to live on govt doles like parasites.”
True. This and every budget will do the same. Reason. Only 4% voters are tax payers. This is not 4% of total population – its 4% of all adults who have right of vote in this country. Now when tax payers are in minority, why do you think any govt. would care for them? Its not about Modi. Its about India being full of free loaders and tax thieves. Not even God himself can change that.
I fully agree.
No point is buying a compulsory annuity giving just 6 to 7% return (as interest rate regime stands today) and pay 30% tax on that.
Effectively it means :
1. Either pay tax @ 30% on 60% corpus withdrawn without buying annuity.
2. Or pay 30% tax on monthly annuity payments received which is at 6 to 7% of the fund corpus.
In fact both options will result in paying 30% tax on your full 60% balance corpus – in first case it is paid immediately and in second case it is paid in yearly installment.
Companies would cut dividend payments . The question is why do the companies cut dividends? Because promoters holding major portion of share capital are forced to pay additional 10 % dividend tax. Another school of thought – companies instead of cutting dividends will step up dividends so as to cover 10 % additional tax payment. This may be far fetched. Nevertheless for the sake of putting forward various thought process. A comapny is having Rs. 10 cr Share Capital. And promoters hold 75 % which means Rs. 7.50 cr. Assuming company declares 100 % dividend . And the promoters are entitled to receive Rs.7.50 Cr and liable to pay 10 % tax additional tax on dividends received. Net dividend is Rs.6.75 cr. Now the new scenario. Promoters intent is to receive 100 % dividend . To achieve that work it back and pay 110 % dividend . 110 % dividend on Rs.7.5 cr promoter holding translates to Rs. 8.25 cr. After paying 10 % additional tax net dividend in the hands of promoters is Rs. 7.425 cr. And in the process non promoters shareholders get additional 10 % dividend. Just my figment of imagination running wild !!!!!
thanks ananth, you cleared many doubts.
Please note that the biggies won’t get affected by the extra 10% tax on dividends since they control things via trusts and the fine print shows that the draconian 10% is not applicable to trusts. So, who will lose out? it is the common investor, who does not know such tricks as HUF, holding cos, trusts etc….
coming to the loot of the PF, the confusion caused in statement, counter statement, clarification etc is so humongous? is it worth it? which govt entity has systems to calculate such intricate calculations as – only interest taxed but post 1-4-16..this retreat came after all the anger? then, as Kharb pointed out above, the draconian measure of taxing contribution more than 1.5L is horrendous !! 1.5L in this hyper inflation country is nothing…
All these moves (including the 12% to 15% hike in surcharge plus krishe kalyan tax, service tax etc) is peanuts if you compare the trillions of parallel economy, who make crores and crores and no where in the tax orbit..it is the salary class which is tortured, crushed, tossed around and trampled….the reason – we have no voice, we are not the vote bank, we are not the financiers of policos, we are not in politicos and due to transient nature of our jobs and living out of suitcase habits, we may not even vote…..so, squeeze them till their skin dries out is the philosophy of yesteryears of govts and it is the same with this govt too. All I can recall is Winston Churchill’s immortal words about India “A day would come when even air and water would be taxed in India_.”
Specialist Bro, I completely agree with every word stated by you. The service class is being punished because we are so indifferent to everything happening around us and just concerned about individual interest. If we start behaving as a group, we can resist such moves…
Idea is to make rich class pay more taxes. Dividend tax helps in achieving that. Only rich class, who has access to Media and is capable of making more noise is making it. It does not impacts middle and low class.
@kaushal – your definition of rich needs a reevaluation. The real rich are getting away with it- either hoarding it in black or having offshore entities or through loopholes like trusts….if you take the net out of what will you gain out of all these, it is peanuts for the govt.
the budget and subsequent move from RBI to let psu banks to increase their capital by revaluing real estate are only rewarding the inefficient and the corrupt at the cost of the honest and hard working. This kind of thing would have never happened in a more mature western economy (not that they do not have their own share of problems). This whole movement towards the socialist model is very worrisome in the long term and will reduce our global competitiveness.
The country need to increase revenue and tax GDP ratio year after year. Jobs have to be created. Divident tax increase is better than increasing further direct and indirect taxes. Or you need to have asset/ networth tax. This will help to decrease the inequality among various sections of the people.
Why Modi forget his promise of bringing black money and why he don’t fund from that these wastage schemes like MENREGA which are anti national vote buying schemes. Modi is just extra taxing the same salary calsss who are paying their taxes through their nose the hard earned money .Private sector employees are real contributer to nation in terms of productivity and tax payments but are being punished to Fund a vote buying MENREGA scheme which is making Nation Sick..MENREGA will also result into population blast as govt will fund every mouth with no responsibility of parents. Nation is being guided to disaster path under Modi ,who come to power by making jokes of MENREGA and promise of bringing black money,but now Punishing the voters (by extra taxing on PF and increased service tax on every thing) who voted him like me.
Kharb saab agree with you. Also, why tax only EPF; why not PPF? because PPF is used by lawyers, doctors, traders who conceal their income in any case. Which doctor is declaring his real income? entire doctor consultation business is based on cash economy, even in urban areas; as far as hinterlands, it is all cash everywhere. This govt has no courage to tax them.
Dear Specialist,
the real trouble is how do we find out how much a doctor earns, when he is been paid cash . There is no way to find out earnings where transaction happens in cash . Only way is encourage use of plastic money . There are already lot of checks in place on big ticket transactions, purchases etc, but they are not enough .
In bangalore there are Building owners ( which includes hundreds of flats) who earns in crores with strict policy of taking rent as cash . How tax department can deal with these peoples ?
Tax department is slowly moving towards big data related tools to analyze and catch bigger transaction is the silver lining . Lets hope it happens soon to reduce the burden and poor salaried scape goat class .
Any person with average IQ, will be easily able to evade tax department .
Real black money is around us only and created by us only (land and flat transactions )
Thanks,
Prashant
Great point Prashant. The highly educated doctors, lawyers, self-employed professionals, etc etc are all Indian citizens. They evade tax and blame the govt. for failing to full fill its promise of bringing back black money in foreign accounts. There is really no way the government can tax them if the transactions are in cash. In this budget there is proposal for them. Lets hope people realize that they too have to make their contribution for developing our country.
All the best for those who are waiting for SENSEX to fall at 22000
I m buying now
Do not follow so called “fund managers” (most of them not beleiving in fundamentals) saying
“correction is over” and so on
It is too early to make such baseless statements. Many opportunistic parasites are still using media for promoting themselves and their holdings. Retail investors must isolate Such proclaimed guru’s and their stock ideas
Do not complain it’s you who voted BJP during elections.