FM's fiscal prudence to be positive for stock markets: Suresh Sadagopan

Chat with Suresh Sadagopan, Founder & Principal Financial Planner, Ladder7 Financial Advisories

Markets are not expected to be majorly impacted due to this budget, which is not negative but is not to very positive from the industry or citizen perspective, says Suresh Sadagopan, Founder & Principal Financial Planner, Ladder7 Financial Advisories. He also added that the personal income tax measures should be net positive for the government as in the higher slabs they would get 10-15% surcharge. Edited Excerpts.
 
FM has not increased any service tax as of now, won't the rise in tax be difficult to incorporate suddenly during GST?
 
True. But since GST is on the way and the Service tax is already 15%, the move to 18% (atleast in most cases) would not be a major jump. He has probably not increased it to 18% now because GST is round the corner.

 

What will be the impact on the Budget measures in case of buying real estate?
 
There is no direct benefit arising out of the budget itself. However, some of the measures directed at the banks could positively impact the interest rates and they could come down. One of the direct benefits is that you may sell the real estate after a period of two years instead of three years (in future) and you will be subject to long-term capital gain treatment.
 
Do you think the tax measures will help government get more tax?
 
The personal income tax measures should be net positive for the government as in the higher slabs they would get 10% surcharge (Rs.50 L - Rs.1 crore ) & 15% surcharge above Rs1 Crore. They would have done that calculation before introducing the benefit for those in the lower tax brackets. So, on one hand a mass of people will get benefitted and on the other hand a much smaller set of people will compensate for the loss.

 
Do you think this tax schemes will make it worthwhile for the evaders to pay tax?
 
What the government is probably attempting to do is a mix of carrot and stick approach and also nudging the citizens along the digital payment mechanisms by making them easy to use and seamless. Then the government is also now vocal about the fact that they are doing data analytics and will be able to find people whose spending pattern do not match with their declared income. Infact, this last thing should be a big deterrent as most purchases are being captured today and government can easily piece together the data regarding a person and initiate any action it may deem appropriate. Due to all these, there would be more incentive for compliance.

 
What will be the impact on the real estate sector as FM has reduced the tax time on gains for immovable assets to 2 years?
 
This is actually a curious move. This will allow people to exit with a lesser holding period. But, that is hardly the prescription needed today. There is too much supply, both with the investors and with the builders and too few buyers. The problem is that one is not able to exit at all. That problem will not be addressed by this change of capital gains from three to two years. My assessment is that, this will have very little impact on the real estate sector for now.

 
How do you think the Budget will impact black money?
 
There are measures that they are contemplating - like Rs.3 L limit for cash transactions, Rs.2,000 limit for cash donations etc. Plus there is a push towards digital payments. All these would make the transactions transparent and black money will find hard to be there. Government is also intent on using big data analytics to ferret out data about those who have black money based on their spending patterns. Plus, govt is trying to bring in regulations to ensure that people cannot borrow money and flee abroad. These are some of the measures. These and many more to come together would address the black money issue. Having said this, our people are innovative in finding solutions to intractable problems. The government needs to constantly be on the run to catch such offenders.

 
No change in the capital gain tax and security transaction tax. Was this on expected lines?
 
No. The general belief was that Capital gains/ STT were going to change for the worse! Probably, that was a leak which spooks people and when we find that there is no change, we tend to see it as positive. It is a mind game.
 
After the budgets, the markets have rallied. Is it a sustainable rally?
 
I don't think so. There is not much in the budget to warrant a rally the measures announced in the budget would bear fruit over time.

 
As expected, the thrust has been on rural, agriculture and infra and that too by government. Since India is a consumption led economy, what is your view from a budget perspective on the market and economy?
 
It looks like the budget is trying to give a stimulus through spending on Infra & transportation sectors, pouring money in government schemes benefitting people in rural areas, skill building initiatives which may create employment etc. On paper it looks good. Government intent is quite removed from reality most times. We need to wait and watch and see how much gets translated into reality. If that happens, this budget can give the required stimulus. There is nothing specifically there in the budget to enthuse the markets. There are no negatives out there and that could be a positive by itself. Also, the FM has been talking of fiscal prudence, which the stock markets will look at favourably. There are no cues for the stock market from this budget. Much depends on how the economy will shape up from now on .

 
The Finance Minister claims that the tax liability of everyone is going to decline, irrespective of his or her earning. But on the face it appears the middle class is the only winner. What's your take?
 
You are right. For people upto Rs 50 lakhs, there is a saving of Rs12,500 in taxes. For those whose income is between Rs 50 lakhs to Rs1 crore, even though they can also avail of this tax saving, they would now be paying a surcharge of 10% now. So, for this tax bracket, they would be paying more taxes overall. Similar logic holds good for those with income above Rs1 crore.

 
What does cash transaction limit of 3 lakhs mean? Can we not withdraw more than 3 lakhs in cash from banks in a year or make payments of more than 3 lakhs a year by cash?
 
This is a limit per transaction payment. This is a decently high limit. Most of us would deal in cheque/ net transfers for high value transactions, as this is convenient and secure. This move is not going to inconvenience regular citizens; it may be a problem for those who want to conduct all transactions ( including high value ) in cash as the money is unaccounted. Withdrawal limits today are constrained. Once it comes back to normalcy, the limits would be those that your banks set per day for withdrawal.

Jaitley said only 1.74 crore individuals filed income tax returns as against 4.2 crore people working in the organised sector. What can be done to improve this?
 
If someone's income is below the threshold of their basic exemption limit 9 Rs.2.5 Lakhs for normal citizens & Rs.3 Lakhs for Senior Citizens ), there is no compulsion to file tax. I reckon, many of those not filing may be there. There are a whole lot more who do not take into account their investment incomes, which brings them to taxable limits, where they actually have to file returns, even if their tax liability becomes zero on account of tax saving measures. IT department is sending out notices to such people. But, if these parties do not respond, IT department is hardly in a position to follow up as these cases are just not worthwhile. Hence, the only way to make people file tax is by giving them some positive incentives for filing tax returns. Many companies ask for IT returns for loans, which makes filing return mandatory. These indirect routes may bring in much more compliance than sending notices.

 
Is it wise to invest in SIP?
 
Any time is a good time to start SIPs. Plus the markets are not expected to be majorly impacted due to this budget, which is not negative but is not to very positive from the industry or citizen perspective. This budget has focussed on structural aspects which has a long-term focus (which is a good thing ) but that would not result in any major rally in the market.