Union Budget 2025: Tax Cut And Extended Holding Period - Key Expectations From Mutual Funds Industry

Finance Minister Nirmala Sitharaman is all set to present the Union Budget for FY 2025-26 on February 1. Stakeholders from all walks of life are eagerly waiting for the presentation of the Union Budget.

Ahead of the presentation of the second budget under the Modi 3.0 government members of the mutual funds industry have shared their expectations. Here’s a look at some key expectations from the mutual funds industry:

Alekh Yadav the Head of Investment Products at Sanctum Wealth, a professional wealth management company, also stated that significant changes to capital gains tax rates are improbable since changes were announced in the previous budget itself.

“Significant changes to capital gains tax are improbable, as the last budget already introduced major adjustments. The government may offer some relief in personal income tax or implement other measures to stimulate consumption, which has slowed in India in recent months,” Yadav told Outlook Money.

The capital gains tax on short-term and long-term gains from equities was hiked as a part of the Union Budget 2024. The short-term gains tax on equities was increased to 20 per cent from 15 per cent. The tax applicable on long-term gains was increased to 12.5 per cent up from 10 per cent.

Sandeep Bagla the CEO of Trust Mutual Funds projected that the budget is going to be a ‘tightrope budget’. He also said that he expects the capital gains tax to increase marginally as the government tries to increase revenue amid a slowdown in the domestic economy.

“It is going to be a tightrope budget. The domestic economy is slowing down. The Rupee is under pressure. Inflation is yet to come to RBI’s comfort levels. I expect a marginal increase in capital gains tax to shore up revenues. Personal tax rates could be reduced or adjustments in the buckets could be made to put more money in consumer’s hands,” Bagla told Outlook Money.

Anand K. Rathi the Co-Founder of MIRA Money said that the government should consider reducing the capital gains tax to improve market sentiments and foster a more optimistic investment environment.

“While complete abolition may be challenging, history shows that increases in capital gains taxes often slow market growth. By reducing or eliminating capital gains taxes, we could potentially witness a substantial surge in investment and a significant improvement in market sentiment, fostering a more optimistic investment environment,” Rathi said.

Rathi also said that the long-term holding period for investments should be increased to three years as it can aid investors in committing to long-term equity investments. Investments held for less than 12 months are currently classified as short-term investments. On the other hand, if the investment is made for more than 12 months it is termed as a long-term investment.

“Extend the holding period for long-term investments to at least three years. This measure would not only encourage more investors to commit to long-term equity but also reassure them about the stability of the market, fostering a sense of security and trust,” Rathi said.