Alternative Investment

budget expectations: Will Budget 2023 boost capital markets? Here’s what to expect

As the Union Budget 2023–24 knocks on investors’ doors, it is time that they brace for possible additional volatility in the financial markets. The Finance Minister will present the budget on February 1st, 2023 and the expectation is that she will continue and also expand on the already laid down path of structural reforms while adhering to a fiscally prudent course of action with a targetted fiscal deficit of 5.8–6%.

As every year, this year too, expectations run high among individual taxpayers on the reduction and revision of the tax slabs as higher inflation has put a hole in their pocket. There could be a reduction in the top tax bracket from 30% to 25% and/or an increase in the number of threshold slabs. Additionally, it is possible that the investment limit under Section 80(C) may be raised from Rs 1.5 lakh to Rs 2.5 lakh, which will be well-received by individual taxpayers. A boost to the capital markets could arise from an increase in the 80C limit in the form of more positive cash flows to equity-linked savings schemes (ELSS) of mutual funds.
(Tax breaks, jobs or plan to beat China: What will Budget 2023 offer? Click to know)

Currently, listed debt securities, including listed market-linked debentures (MLDs), must be held for 12 months in order to be considered long-term investments for capital gain tax purposes, whereas, for debt-oriented mutual funds, this holding period is 36 months. We anticipate that the Finance Minister would agree to a parity for all debt products and hence align the 36-month holding period to be considered as long-term investments, which would affect the NBFCs issuing such MLDs in the market.

With increased interest from HNIs & ultra HNIs in alternate assets, particularly in SEBI-approved alternative investment funds (AIFs), we may see tax clarity coming in for the CAT III AIFs, which will be a welcome move from the industry as well as from the investors’ viewpoint.

With a possible push towards the real estate sector and affordable housing schemes, we may see an increased tax exemption limit towards repayment of housing loan interest from the present 2 lakhs.

While there would be a continuation of the theme of structural growth and a strong focus on India’s economic growth, we believe that the Finance Minister may also have some good news for individual taxpayers in the forthcoming budget and in some way positively influence the capital market too.

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