Ankit Gupta
In the Union Budget 2022 presented last year, Finance Minister Nirmala Sitharaman took several major reforms steps. This time also there is a lot of expectations from the budget (Budget 2022). Especially the Finance Minister can make big announcements for the bond market. This is the right time for bold reforms in the bond sector. I believe that increasing the share of retail investors in the bond market will deepen the sector. Apart from this, many big steps need to be taken for bonds in the budget.
At present, the share of retail investors in the bond market is very less. It needs to be increased. The Finance Minister may announce to ease the process for retail investors to invest online in the bond market. Government bonds and AAA rated securities can be covered under Section 80C of the Income Tax Act, 1961. With this, the common man will have access to bonds.
There is a need to simplify the tax rules for debt securities with higher credit ratings. At present, capital gains arising from the sale of bonds are taxed under the head ‘Income from Capital Gains’. However, the interest income from these bonds is treated as net income of the taxpayer. Then, it is taxed according to his tax slab. This raises the tax rate to 33 per cent. Because of this retail investors are hesitant to invest in bonds.
I believe that Finance Minister Nirmala Sitharaman should simplify the tax rules for bonds on the lines of debt mutual funds. By doing this, the tax rate on bonds will come down to 10 per cent in terms of long-term capital gains. Government bonds and AAA rated bonds can be brought under this tax structure. I would request the finance minister to focus on zero and deep discount bonds as well. The government will also have to focus on issuing tax-free bonds. This will give the government an opportunity to raise money at a cheaper rate. Along with this, investors will also get the option to earn higher yield.
It is seen that most of the investors do not have adequate knowledge about debt instruments i.e. bonds. This prevents them from investing in bonds. They prefer to keep money in fixed deposit schemes of banks. The Finance Minister can announce measures to increase awareness about the bond market in this budget. Explaining the debt market and its merits can be of great benefit to retail investors.
I believe that the Finance Minister should announce a common depository. All types of securities can be allowed to be kept in it. Currently, corporate bonds are held in NSDL or CDCL depositories, while government bonds are held in SGL accounts. SGL stands for Subsidiary General Ledger Account. This account is opened with the Reserve Bank of India (RBI). Financial Institutions open this account for trading in Government Bonds.
Read also: Budget 2022: Know from Wealth Manager Ankit Yadav this time Nirmala Sitharaman what could be in the box of
Ankit Gupta is the co-founder of bondsindia.com.
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