Yesterday I have written about the changes in the Union Budget and in the last 24 hours I have seen many people criticizing the government for the budget. Though tax payers got a benefit of Rs 17.5K but the problem is with STCG and LTCG, they will pay more to the government.
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I was reading somewhere that if you earn Rs 100, Rs 63 goes to the government and just Rs 37 stays with you. That means you are working for the government 7 months whereas just for 5 months you are working for yourself. The honest tax payers are the one who suffered the most most of the time. Middle Class in India is actually a trap where the government doesn't want you to come out of that trap and that's why the middle class stays like a middle class.
The problem is government is not bringing more and more people under the tax bracket. Only 2.3% of the total earning population is paying the tax so that's why more and more tax has to paid by those 2.3% people. The income tax people are the golden goose of the government and that's why they are trying to extract more and more from them.
Most of the disappointment comes because of the STCG and LTCG because market are the places people would invest to get more money and increase their wealth. One of the reason was that the bank is losing money to the market and with more taxes in the stock market government is thinking that will make people go back to the old FD and stuff.
But the thing is people who are in market will not leave the market and stay there even if we have to pay little extra. Like in my case, I am following the ETF shop and will continue by paying 20% tax. Also for the long term, what we can do is to book 1 lakh profit every year so that our tax liability doesn't increase much.
For example, your money grew from Rs 1 lakh to 2 lakh. So this year I will book the 1 Lakh profit and thus invest that 1 lakh again. So now my investment will become Rs 2 lakh and profit 0. Next year, if I get a profit of Rs 1.5 lakh, I will book 1 lakh profit and invest it again. And thus I don't have to pay any LTCG. This is one way to get around the LTCG tax.
