Budget 2018


Budget 2018 is behind us. Loads of talks, loads of news, loads of whats app…  information is all around. Before the budget, there was a rumour that equity investments could be taxed and In line with expectations, the government has reintroduced the Long Term Capital Gains (LTCG) on equity investments.

In very simple words, the taxation on Equities or Equity Oriented MFs shall be as follows

  Earlier From FY 2018-19
Held for < 1 year 15% 15%
Held for > 1 year 0% 10%
Dividend from Equity MFs 0% 10%

(Equity MFs would also include all equity oriented balanced funds, Equity Savings Fund and Arbitrage Funds)

Many investors feel it is a bad move. It’s not surprising to see some negative reaction but we need to look at the broader picture

  • Equities are still favorably taxed as government understands the need for equity participation
  • In many other countries, equities are taxed as just another income at far higher rates
  • Also, government has given a grandfathering clause. It means that any investments made prior to 31st January, and any gains till 31st January will continue to be tax free.

What investors should understand

  1. Investments should be done keeping goals in mind. If one has long term financial goal and does not need money for short to medium term, equities should be an asset class to be in.
  2. Taxation should not be the first or second criteria before making investment decision. Primary focus should be financial goals and risk taking ability.
  3. Just because after 1 year equities were tax free, it did not qualify as an investment for short term and just because FDs are taxable, it does not become bad investment for short term.
  4. Equities are good for long term as Wealth Creation tool and an asset class which can beat inflation comfortably. In many developed countries where Equities are taxed at much higher rate than India, people still invest majority of their long term investments in Equities understanding the sheer growth that they can get from it.
  5. In my opinion, now at least investors will focus on their goals before choosing debt or equity rather than taxation.

Mis-selling in Balanced Funds would stop

From new Financial Year, Dividend Distribution Tax (DDT) on Equity or Equity Oriented Funds have been brought back. In last 2 years or so, lot of mis-selling has happened in Mutual Fund space where Balanced Funds were rampantly sold by Few Distributors and Bankers specially as Guaranteed Monthly Income as these funds were giving monthly dividends.

Honestly speaking SLA had a tough time explaining people that this is just a marketing gimmick and as long as markets are doing good, dividends will keep coming and when markets will go thru tough times, all these dividend paying would stop. But as it happens in life, people get attracted towards flashy things and often good advises are ignored in short run as they are not flashy. We always used to suggest Systematic Withdrawal Plan (SWP) for creating regular income.

What’s SLAs take on this Budget and especially on taxation on Equities and Dividend taxation

  • SLA has always believed that we should invest in any asset class not on the basis of tax rules prevailing but based on the merit of the asset class.
  • Each investment or asset class is suited for catering a specific need and we need to simply invest based on what really suits us
  • Equities still continue to be the best asset class for long term wealth creation and long term financial goals.

I would like to conclude my article by quoting one the most genius person born on earth  Albert Einstein . He said “The hardest thing to understand in this world is Income Tax”

Keep things simple and don’t complicate it… Even Einstein could not understand taxation…


SLA Financial Solutions is a Leading Advisory firm based out of Jaipur. We are amongst the top 5 Financial Advisory firm with a team of 20 + people. We have been awarded twice by CNBC as best Financial Advisor across North India.