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Home >Budget >Budget Expectations >Budget 2021: What retail investors expect from this year's budget

As we come close to the first month of the hopeful year that 2021 is, there is a lot of anticipation and speculation around the Indian Budget of 2021. Nirmala Sitharaman, Finance Minister, shall present the Union Budget on February 1, 2021.

After COVID-19 put the economy to a sudden halt for a part of 2020, all eyes will be on the FM as to what’s the plan for economic revival.Particularly for stock market participants, the year 2020 was unlike any other! The stock market tanked almost 40% in March 2020 and bounced back to achieve new all-time high milestones. With that said, investors will be keenly awaiting the budget and the impact it may have on the investment decisions. Here are few expectations retail investors have from Budget 2021.

NPS tax-saver to the entire investment community

The Union Budget 2020-2021 announced the launch of Tier-II of the National Pension Scheme (NPS). Although the lock-in period for the Tier-II NPS was shorter as compared to Tier-I, it was only made available to government employees. After reducing the lock-in requirement, NPS funds can be compared with ELSS schemes. This year, investors will expect the government to make the Tier-II available to all retail investors to provide them with an added option of investing in a tax-saving equity-related fund.

Removal of Long term capital gains tax

There are expectations from the retail investors towards change in the/ abolishment of the present long-term capital gains tax structure.

Currently, 10 percent tax is payable on long-term capital gains above the threshold limit of 1 lakh on gains from redemption of equities and equity-oriented funds in a financial year with no indexation benefit.

The reintroduction of LTCG tax in the 2018 budget affected the investors’ confidence. The 10 per cent LTCG tax is an additional tax burden along with other transaction taxes – like STT, Stamp Duty. Reducing or abolishing LTCG can raise the investors’ confidence.

Removing the tax on dividends

Last year, interest rates plummeted, and several investors felt a major strain on their fixed, regular income. Furthermore, the government had scrapped the Dividend Distribution Tax (DDT) which made dividends taxable for all investors. Considering the current scenario with the pandemic-hit economy, investors will need to boost the fixed-income section of their portfolios that can easily be replaced by equity shares of companies that hold a good track record of offering substantial dividends. If this year’s Union Budget manages to abolish the tax on dividends or re-introduce the DDT, retail investors may begin to look at equity investments for dividends as a way to replace the fixed income.

The Union Budget 2021-2022 will be the first one in the post-COVID world. The Indian investment community will be looking forward to concrete measures from the government in favor of a speedy recovery process for the national economy. Especially for hard-hit sectors such as travel and tourism, aviation, retail, and hospitality, there is an urgent requirement to fast-track their journey on the road to recovery to bounce back to pre-COVID times. It would be interesting to see what the Budget 2021 has instore for retail investors on Feb 1, 2021.

Harsh Jain, co-founder and COO, Groww

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