Investors better off ignoring what’s happening in market: Dhirendra Kumar (2024)

Dhirendra Kumar, CEO, Value Research, says the government is in a Catch-22 situation when it comes to broad-basing tax base and increasing money in the hands of people. He adds that a personal income tax cut is expected more so as a follow up to the government's corporate tax rate cut. Edited excerpts from interaction with ET Now:

Are you expecting any sort of bonanza on personal income tax from the upcoming Budget?I hope the long-term capital gains tax clamped on equity is abolished and this has been the talk. But we have to wait and see how the Finance Minister works towards reducing the tax rate in a manner that consumers or people have more money in their hands and at the same time ensuring broad-basing our tax base. It is a very catch 22 sort of a situation. But this (cut in personal income tax) is expected, more as a follow up to their corporate tax rate cut. The income for many people, particularly the self-employed, is fungible. It is reasonable to expect that some bonanza is coming our way.

What should some of the individuals be doing in terms of their overall tax planning this time around given some of the deductions that we are expecting?

Normal organised sector employees are hardly left with any room to invest or save tax. This is because their provident fund deduction, if you are in the government employee or someone from the sector, EPF contribution are all eligible for 80 C deductions. And the maximum deduction that you get is Rs 1.5 lakh and that has not gone up for many years. It should be revised upwards and I feel that the 80 C provision is very crowded. You have everything there – provident fund deduction, insurance premium or your Public Provident Fund contribution. Broadly, there are three things and most of the mandatory things actually fill it up. So investors or savers are left with very little option.

What has emerged very strongly in the 80 CCD deduction is the additional Rs 50,000 which you can do in NPF. And NPF has improved gradually over time. This has come as an additional thing and my expectation will be that something is being done about these people because they are hardworking tax paying people, and if they are financially independent and self-sufficient it is a relief for the government in the long-term.

You had mentioned that preparing for a specific event is not the right way to go about planning your investments especially when it is a big one like the Union Budget. So, are you saying do not bank on Budget when it comes to planning your investments and focus on currently the situation at hand?

Yes, that has always been the case. In fact, I sound like a broken record when I say that various event risks happen all the time. You will have a Union Budget, there could be something happening in the US, some movement in oil prices; but that should not alter your investment plan or savings plans because most of your goals will not get altered. If you planned to invest long-term money in equity, then you are investing it gradually. Your medium-term and short-term money is invested conservatively; it is not subject to all kinds of market movements. A 10 per cent capital gains tax or no capital gains tax does not change the equation or the case for equity in the long-term. Likewise, a poor market should not guide you to be investing in fixed income just because the last one or two years have been disappointing. If you are guided by those broad principles, most investors will be much better off by ignoring everything happening in the market.

Any other golden rules when it comes to tax planning, investment analysis ahead of the Budget?

I would like to say two things: First is exhaust your 80C entitlement because tax saved is money earned. Under 80C, choose the tax-saving fund or invest. If you are left with Rs 20,000 which you can invest and that could be deducted from your income for computing taxes, go ahead and do it. Likewise, if you have an additional Rs 50,000 savings avail that from 80CCD. NPS has improved, choose a fund there, have a 75 per cent allocation to equity and keep doing it since tax saved is money earned. Use all your entitlement to save on taxes and this is the only methodical window available to individuals. They do not have much room to plan their taxes; this is the only way to go about it.