Union Budget And Opportunities In Various Asset Classes In 2017
Smart Business Event held in association with the Association of National Exchange Members of India
Changes in taxation norms made in Union Budget 2017 will reduce the attractiveness of trusts as tax planning tools, said panelists at a panel discussion on "Union Budget and opportunities in various asset classes in 2017", a Business Standard Smart Business Event held in association with the Association of National Exchange Members of India (ANMI-NR) on 16th February 2017 in New Delhi.
"Earlier, gifts of above Rs 50,000 were taxable in the hands of individuals and HUFs. So people formed trusts, which were exempt and took any amount as gift. Now, every entity has been made taxable, including trusts," said Dr. Girish Ahuja, Director, State Bank of India, Member Direct Tax Committee.
Another change that will affect trusts adversely is that earlier dividend of more than Rs 10 lakh in a year was taxable in the hands of individuals, HUFs and partnership firms, but trusts were exempt. In the future, even they will have to pay this tax.
Prior to this Budget, many wealthy families had moved their assets into trusts on account of rumours that the government may introduce inheritance tax, as is prevalent in the US and UK. Once assets have been moved into a trust, they stay there in perpetuity, and hence don't attract inheritance tax. However, with the changes ushered in by the Budget, the move to set up a trust may not prove all that advantageous.
Ashok Agarwal, Chairman, Globe Capital Market, lamented the fact that the government did not lower the securities transaction tax (STT) despite representations made to it. "Transaction costs on Indian bourses are among the highest in the world because of which our market is getting exported," he said. However, he lauded the fact that the government chose the path of fiscal prudence, which, he said, would help keep interest rates low and would be positive for the capital market. It could even help improve India's ratings.
Ankur Kapur, Founder, Plutus Capital, said that the fact that the RBI did not lower interest rates in its February monetary policy review indicates that it is focused on containing inflation, and is acting independently and not under government pressure. "With RBI not lowering rates and also shifting its stance from accommodative to neutral, investors will be better off investing in medium and short-term debt and debt funds," he said. As for equities, he warned that valuations are expensive; hence investors may have difficulty finding quality stocks at reasonable valuations. While investors should continue with their SIPs, they should avoid making lump sum investments currently.