Capital gains intact, so what if they’re taxed a bit higher?

economictimes.indiatimes.com:

budget day, the market is prone to kneejerk reactions. So, as soon as the finance minister announced higher short-term and long-term capital gains taxes on financial instruments, the stock market tanked. Of course, it recovered towards the close as sanity set in.

And what’s that sanity? In my view, it is that capital gains are intact, only the capital gains tax is higher.

And what drives capital gains in the equity market? Clearly, two factors — one, corporate earnings growth and two, stock market fund flow.

Let’s take corporate earnings growth first. It too is driven by two macro factors — capex and consumption. Clearly, the recent few years have been driven by capex mainly by the public sector. With the need for fiscal consolidation, this lever has run out of steam for now. That’s when consumption needs to step up.

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And this budget does its fair bit for consumption. Standard deduction on salary income is up from ₹50,000 to ₹75,000, deduction on family pension is up from ₹15,000 to ₹25,000, first-time employees stand to get one month’s salary; for fresh hires, employers stand to get a subsidy on their provident fund contribution, internship allowance for youth, and so on.

Maintained capex and the consumption boost should help the