Will the 2023 budget boost capital markets? Here’s what to expect

As the 2023–24 Union Budget knocks on investors’ doors, it’s time to prepare for the additional volatility that could occur in financial markets. The Secretary of the Treasury will present the budget on 1 February 2023 and it is expected that she will continue and also broaden the outlined path of structural reform while adhering to a prudent course of action on the with a target fiscal deficit of 5.8–6%.

As every year, this year too, individual taxpayers have high expectations for the reduction and revision of tax tables because higher inflation has left their pockets at a loss. It is possible to reduce the top tax bracket from 30% to 25% and/or increase the number of threshold tables. Alternatively, it is possible that the Section 80(C) investment limit could be increased from Rs 1.5 lakh to Rs 2.5 lakh, which would be well received by individual taxpayers. A boost for capital market could arise from an 80C cap increase as a more positive cash flow for mutual funds’ equity-linked savings (ELSS) schemes.
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Currently, listed debt securities, including listed market-linked bonds (MLDs), must be held for 12 months to be considered a long-term investment for capital gains tax purposes, whereas , for a debt-oriented mutual fund, this holding period is 36 months. We anticipate that the Treasury Secretary will agree to apply parity to all debt products and thus arrange a 36-month holding period to be considered a long-term investment, which will affect to NBFCs that issue such MLDs in the market.

With the growing interest from HNIs and super HNIs in alternative assets, especially in SEBI approved alternative investment funds (AIFs), we could see a clear tax on the AIF CAT III, this would be a welcome move from the industry as well as from an investor’s point of view.

With a potential boost to the real estate sector and affordable housing programs, we could see an increased tax-free limit on home loan interest payments from the current 20,000.

While the theme of structural growth will continue and a strong focus on India’s economic growth will continue, we believe the Finance Minister may also have some good news for individual taxpayers in the budget. coming and in some way also positively affect the capital market.


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