What makes India proud is now being Taxed to Common People?

How many of you find pride in sharing these numbers with your clients, channel partners etc.?  From 3cr demat account holders to 16cr demat account holders, investment in equity mutual funds surged over five-fold to Rs 94,151 crore in the June quarter against Rs 18,358 crore a year ago, mutual fund SIP book growing from Rs 3000cr ( during 2011) to Rs 20000cr ( in 2024), Sensex rising 4x from 20000 mark in 2020 to 81000 mark, the F&O segment reached ₹8,740 lakh crore in March 2024, a sharp increase from ₹217 lakh crore in March 2019 and FY24, individual investors accounted for almost 36% of the equity cash segment turnover. 

On the other hand, the PMS and AIF industry witnessed a huge growth of 3x growth in the last 5 years.  The Mutual Fund Industry witnessed stupendous growth in the last 5 years from Rs 22.60 lakh cr in 2020-21 to Rs 54.10 lakh cr in 2023-24.  In the last four years, the share of cities beyond the top 30, in total mutual fund assets has grown from 15 per cent to 26 per cent.

Well as the above numbers make us proud, the government also wants to be part of the same and increase its earnings share significantly. We all know that the Indian market will rise more by 2030 and investors' wealth will also increase. Don’t forget that India’s per capita income has also grown significantly.  In 2018 the per capita income of India was $2050 which currently stands at $2411.  The Sensex by 2030 might reach the number of 1.5lakhs and hence the investor's wealth too and this is the place where the government has laid the base platform of being part of every gain in the wealth of common people. Removal of Indexation is a huge burden on the common people.  All asset classes where common people do investments to make early retirement planning and various goal plannings have gone for a toss.

 The irony of the budget is that when the Indian economy and capital market started growing up the government came down with the removal of taxation benefits under the disguise of simplification. Do we all know who came up with a request to the government to simplify and remove Indexation? 

Corporate taxes were reduced in 2019 significantly from 30% to 25% but the corporate profits fell like a pack of cards and hence the government did not earn much apart from GST which is again tax paid by the common people.  The government had also announced a lower rate of 15% for newly incorporated domestic companies. Corporate sector profits to GDP ratio in India in 2018 was 2.9% which grew to 4.1% in 2023 which is far below the number of Fy -07 and Fy-08.

Do you know that the transaction of shares under offers for sale has been brought under the capital gains tax net with the Budget amending the tax provisions with retrospective effect from assessment year FY19? Promoters and private equity (PE) investors who failed to pay capital gains tax have not to pay significantly.  The amount of OFS from 2018 till date is around Rs 3 trillion hence promoters and PE have to pay huge tax on the same now.   Well forget about the Angel tax abolishment the government have new avenues for filling its revenue.

Sovereign gold bonds where retail investors plunged to invest as they carried Indexation benefits. Sovereign Gold Bond Scheme 2016 -17 – Series I issued on August 5, 2016, will be up for final redemption next month. This is the 1st tranche we are speaking about, and the funniest part is that Indexation benefits are gone now. Now imagine the irony for the retail investors who invested under the impression of Indexation benefits and now the same is gone when they want to exit or the funds get matured.

Debt mutual funds are no longer attractive, whereas balanced mutual funds are no longer attractive. Those who bought 2nd houses in the last 10 years and planning to sell off assets well there is a significant burden on tax liability on them now.

The government has taxed every corner. It’s well clear that the government will find significant growth in its revenues which will also bring a discount to its fiscal deficit in the coming years.  You will very soon witness Fitch and S&P rating revision giving more positive momentum to the market.  The government faced a huge loss due to the corporate tax cut down post-2019.

The government suffered a revenue loss of Rs 1.84 lakh crore in 2019-20 and 2020-21 due to a reduction in corporate tax rates effective from 2019-20, according to a report by the Parliamentary Committee on Estimates. In the first year when the corporate tax rate was reduced, that is 2019-20, the overall loss was Rs 86,835 crore, followed by a loss of Rs 96,400 crore in 2020-21. All these losses are being recouped and the government has only been investing since 2020 and we did not find many investments from the private sector. Hence the burden of all taxes is on common people.  

The biggest worry for investors is what type of investments to be made keeping the current changes so that the respective financial goals could be achieved. The taxation changes have completely turned the tide against investors' dreams since what is small as per government is large to the common people. 

If the finance minister of the country counts herself among the middle-class, a good argument can be made that some of the richest Indians too will fall in this category.