Budget
Budget 2024: A case for HNIs to revise investment portfolios
Summary
- The standout feature of the budget 2024 is the harmonization of tax rates across various investment avenues, a move designed to make financial instruments more attractive and tax efficient
In a groundbreaking move, the Union Budget 2024-25 has introduced sweeping changes to the capital gains tax regime. It has brought in tax parity across asset classes. This transformative overhaul is set to simplify the tax landscape and significantly impact high-net-worth individuals (HNIs), who now face the challenge of recalibrating their asset allocation strategies. The government's push for a level playing field extends to domestic and international investments, creating a pivotal moment for HNIs seeking optimal returns.
The standout feature of the budget is the harmonization of tax rates across various investment avenues, a move designed to make financial instruments more attractive and tax efficient. The removal of the indexation benefit on real estate, coupled with a reduction in the tax rate to match that of equities, marks a significant shift. This change not only simplifies tax calculations but also redirects investment flows from traditional real estate to more liquid and competitive financial assets.
Also Read: Eight points to note from the Union budget
Lucrative option in ETFs
In a similar vein, the budget aligns the tax rates on gold and silver exchange-traded funds (ETFs) with those of listed equities, offering investors a more straightforward and potentially more lucrative option compared to holding physical precious metals. This harmonization strategy extends to equities as well, with the tax rates for unlisted shares now matching those of listed ones. By creating a uniform tax landscape, the government is encouraging investors to diversify their portfolios and explore new opportunities in the unlisted equity market, such as NSE shares, which may offer better returns than their BSE counterparts.
Another significant aspect of the budget is the levelling of the playing field between domestic and international investments. By reducing the tax rate on international funds, the government eliminates the previous advantage of holding ETFs abroad through the Liberalized Remittance Scheme (LRS). This change encourages HNIs to consider domestic international fund options without losing out on tax benefits, promoting a balanced approach to global diversification within the regulatory framework of the Indian financial market.
Also Read: Budget basics: Your essential guide to the key numbers, in 18 charts
Time to reassess asset allocation
With these reforms, HNIs must now reassess their asset allocation strategies to optimize returns and manage risk effectively. The harmonisation of tax treatment necessitates a re-evaluation of traditional investment preferences, encouraging a more diversified and balanced portfolio approach. The inclusion of both domestic and international assets within a unified tax framework further broadens investment horizons for HNIs, promoting a holistic view of global markets.
However, not all changes have been without concern. The budget also includes a marginal increase in the capital gains tax on listed equities. While this is seen as a dampener, market analysts believe that the overall positive impact of the budget will outweigh this concern. The influx of new money into the markets, driven by these investor-friendly measures, is likely to sustain the bullish sentiment and propel market growth.
Also Read: Budget 2024 Live Updates: Lower capital gains tax to encourage investment, says Nirmala Sitharaman
The budget 2024 marks a watershed moment in India's capital gains tax regime, driving significant changes that necessitate a rethinking of asset allocation strategies for HNIs. By creating tax parity across asset classes and levelling the playing field for domestic and international investments, the government aims to foster a more dynamic and efficient financial market. As HNIs navigate this new landscape, the financial markets are poised for an exciting phase of growth and development, driven by a more diversified and strategic approach to investment.
Arihant Bardia, CIO and founder, Valtrust.
