Budget 2024: Nilesh Shah Calls For Fair Taxation Between Foreign And Local Investors

Nilesh Shah batted for a level playing field between domestic and foreign investors in Indian derivatives.

Foreign portfolio investors investing in Indian derivatives make capital gains, while local investors trading in the same derivatives face taxation as it's a business income, according to the managing director of Kotak Mahindra Asset Management Co.

"The foreigners trading in our derivatives are earning tax-free income, whereas we pay tax as per applicable slab rates," Shah told NDTV Profit.

The Union budget 2024, announced by Finance Minister Nirmala Sitharaman on Tuesday, introduced changes in capital gains taxation, eliciting mixed reactions from the financial sector. 

"I’m not negatively surprised; I’m just disappointed," Shah said of the upward revision of capital gains tax and the disparity in tax treatment between foreign and local investors.

"Securities Transaction Tax was levied in place of capital gains," he said. "Now both continue since 2018, and capital gains tax is revised upwards."

Short-term capital gains on some financial assets will now attract a 20% tax rate, while long-term capital gains on financial and non-financial assets will be taxed at 12.5%. The exemption limit on capital gains for certain financial assets has been raised to Rs 1.25 lakh per year from the previous Rs 1 lakh. 

Listed financial assets held for more than a year will be classified as long-term, while unlisted financial assets and non-financial assets must be held for two years for the same classification. Unlisted bonds, debentures, debt mutual funds, and market-linked debentures will now be taxed at the slab rate.

"Tax incentives are like vitamins but for correcting certain economic deficiencies," Shah said. "They're necessary to stimulate capital formation and investment."

"Corporate India makes Rs 16 lakh crore of profit and gives probably 40% of that by way of dividend," he said. "Now, is there an investment happening? The answer is that it's happening in a limited manner."

Shah said that without adequate tax incentives, it would be challenging for the private sector to drive investments. He also spoke about the huge amount of idle currency and gold in the country. 

"Nine lakh crore rupees between FY21-23 have gone into currency notes, which remain idle," he said.

He also said India's net import of gold, including smuggling and personal jewellery, has reached about $500 billion, surpassing foreign direct investment. 

"We need to give incentives so that the currency note, instead of being idle, comes back into the economy," he said.