Budget 2019 expectations: Long term capital gains (LTCG) tax on ULIPs, NPS equity returns?

Budget 2019 predictions: A new roar has been made by industries and once again it is about Long term capital gains (LTCG) tax reforms. It would not be wrong to say that LTCG taxes were the most surprising reform that took place in Budget 2018. However, now that Prime Minister Narendra Modi led government is preparing for interim Budget 2019-20 for February 01, 2019, many industries are expecting in regards to LTCG on equity returns. This time, the demand is to make LTCG available on your investment in ULIPs and NPS. Shockingly, but this what is being eyed. 

Archit Gupta, Founder & CEO at ClearTax said, "If you decide to change from growth option to dividend option or vice versa, LTCG tax can be applied accordingly."

However, Gupta explains that hanging within the same scheme from debt to equity for ULIPs, NPS is not subject to taxation.

Thereby, Gupta states that industry leaders expect the government to bring in parity between switches and make shifting within the schemes in the equity investments non-taxable.

National Pension Scheme (NPS):

NPS is a government tool of investment which is best for low-class families as it requires very little investment every month from the citizens, but ensures massive returns on the time of retirement.

A portion of NPS is invested in equity and fixed deposits. 

The maturity period of the NPS scheme is at the age of 60 years, and the pool has been known for giving interest rates between 8% to 14%. 

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Unit Linked Insurance Plan (ULIPs):

ULIP  is a scheme where an individual’s investment is divided into a mix of insurance. As the name suggests, ULIP is seen to provide wealth creation along with life cover - under which an insurer invests a portion of your investment towards life insurance and remaining is divided between equity or debt or both as per your requirement. One of the interesting facts of ULIP is that they can also be used for retirement planning, children education or other important events.

When investment in ULIPs are made, an insurance company takes a part of your premium and invests them into shares, bonds, etc. The remaining balance is used for insurance coverage.
Premium in ULIPs can be paid between lowest Rs 10,000 to maximum Rs 1.5 lakh. 

LTCG Budget 2018! 

In Union Budget 2018-19, Finance Minister Arun Jaitley's announcement to tax LTCG has stunned both markets and investors.

The Finance Minister proposed to tax LTCG exceeding Rs 1 Lakh at the rate of 10% without allowing the benefit of any indexation, saying “All gains up to 31st January, 2018 will be grandfathered.”

A tax on distributed income by equity oriented mutual fund at the rate of 10% was also proposed for providing level playing field across growth-oriented funds and dividend distributing funds.

Earlier, LTCG deriving from the transfer of listed equity shares, units of equity oriented fund and unit of a business trust are exempt from tax.
 
Investors have taken advantage of this exemption, tapping Indian markets to whole new level presently.

Experts took LTCG’s return as a negative factor and a major dampener for the growth of the Indian market. They believe this will also reverse investors optimism for equities and mutual funds.

Hence, whether LTCG tax gets imposed on equity investment made in NPS and ULIPs will be a real danger for many investors, on the other hand, a piece of good news for industries.