Market expects a neutral budget, hopes for tax cuts
It is the last budget before the incumbent government goes to polls and stock markets and investors expect it to be a benign budget. There has been enthusiasm over the possibility of a reduction in income tax rates.
"Though it may not be economically possible to have a tax reduction, if it happens it would be a shot in the arm for the stock markets," said R Balakrishnan, executive director, Centrum Broking.
The scorecard this year should be market-neutral say experts. Nevertheless, there are expectations that would set agenda for the coming year.
"The finance minister should talk about the regulation of investment advisors as it is paramount that an investor ombudsman is created," said Ranjeet Mudholkar, CEO, Financial Planning Standards Board of India (FPSB). Encouraging savers to go beyond the Rs-1 lakh tax exemption available under Section 80 C and the passage of PFRDA Bill are two other crucial elements the FPSB is looking forward to.
Another issue that has been disturbing the markets, and yet not seriously addressed, has been the Left's insistence that dividend tax be raised. Industry body FICCI on the other hand has been arguing for a cut in the existing dividend distribution tax.
"It really does not make sense to increase the dividend tax as we have a very low dividend yield of 1.5 per cent," points out Balakrishnan. Cuts in indirect taxes is expected across several industry segments -- which market analysts say make sense from the point of view of inflation -- including a reduction in customs duty on fuel, excise duty reduction for auto industry and extension of tax sops under the Software Technology Parks of India scheme for the IT industry.
Traders said they would like lower securities transaction tax, though there is a belief that it would not materialise. They also want clarity on the definition of trading gains as opposed to short-term capital gains. Rakesh Mehta, chairman Mehta Equities, hopes the holding period of less than 15 days is classified as capital gains from trading, holding period of 15-179 days as short-term capital gains and holding period above that as long-term capital gains.