With the new generation preferring mutual funds and direct equity investments instead of the good-old fixed deposits, banks want Finance Minister Nirmala Sitharaman to give tax breaks to investors in FDs. If the demands are accepted in Budget 2023, will India’s new found love for equities diminish?
Experts say Dalal Street will remain attractive because the return on equity is generally higher than FDs. “The lock-in period is 5 years in respect of tax saving FDs and to avail the favorable tax break the equity needs to be held for a period greater than 12 months, which is significantly less than FDs lock in,” said Archit Gupta, Founder and CEO, ClearTax.
Tax breaks, jobs or plan to beat China: What will Budget 2023 offer? Click to know
Under the current income tax rules, long-term equity capital gains are taxed at the rate of 10% if the gains are in excess of Rs 1 lakh. The interest earned on FDs are taxed at slab rates of individuals, which can go up to 31.2% (without considering the surcharges). “Even if we talk about ELSS MFs instead of direct equity or equity mutual funds, they have a lower lock-in of 3 years and all the benefits of equity are applicable on them. Further, ELSS also has tax-saving opportunities attached to it at the time of investing,” Gupta said.
The Indian Banks’ Association (IBA) has made representations to the finance ministry to make investments in fixed deposits of up to Rs 5 lakh tax free as they want small-ticket deposits to become competitive with small savings plans and insurance products.
A recent survey done by global investment firm Credit Suisse showed that financial savings are seeing a steady rise in India as more than 70% of those surveyed prefer financial to physical savings.
Bank deposits, however, remain the preferred mode of savings in India. According to a study by smallcase and Zinnov, FDs held the highest share of 29.2% among all financial products for retail investors. The share of direct equities stood at 8.1% while those of mutual funds was at 20.1%.
“The reason for the still large share of financial savings invested in bank deposits is less due to differences in trust in these products, and more about the risk-reward balance of bank deposits vs. equities,” said Credit Suisse’s India Equity Strategist Mishra.
Adhil Shetty, CEO, Bankbazaar.com, said the market has delivered 12% annual return over the long-term and so it doesn’t make sense to pin all your hopes against an FD returning 4-5% after taxes.
“One thing has become evident to the discerning investor: FDs are for savings. To invest, you need to be in the markets. For first-time investors hoping to achieve long-term goals such as retirement, SIPs in index funds are a sensible idea,” said the co-founder of the fintech platform.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
For all the latest Business News Click Here
For the latest news and updates, follow us on Google News.
Denial of responsibility! NewsBit.us is an automatic aggregator around the global media. All the content are available free on Internet. We have just arranged it in one platform for educational purpose only. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials on our website, please contact us by email – [email protected]. The content will be deleted within 24 hours.
