Certain investments have failed to become lucrative investments, following the Union Budget 2020. Here are 5 investments that you should not consider, following the Union Budget 2020.
1. Dividend paying stocks
Dividends received in the hands of individual investors from the next financial year, would be taxed in the hands of investors. This means that they no longer are lucrative, if you are paying taxes. These dividends would be added to the total income of a person and taxed as per his current tax slab.
Say you are in the highest tax bracket of 30 per cent and you receive a dividend of Rs 10,000. Your post tax dividend would be only Rs 7,000, given that dividend tax would be Rs 3,000.
Earlier, dividends were tax free in the hands of investors upto a sum of Rs 10 lakhs. However, if you are not being taxed, it makes sense to invest in dividend paying companies.
2. Equity Linked Saving Schemes
Many investors were investing in Equity Linked Saving Schemes for the tax benefits that they offered. Now, the Union Budget has introduced new lower tax slabs, where tax benefits could be better, if you forego SEC 80C and other tax benefits. You may now choose to use the old tax regime with Sec80C benefits or the new tax slabs, where you do not have benefits under SEC80C.
Investors may now opt for the new tax slabs with reduced rates, where they get lower tax rates, but, no exemption on schemes like ELSS. This is likely to have a direct hit on investment in Equity Linked Saving Schemes.
Unit Linked Insurance Plans is yet another scheme, where the SEC80C benefits would go, if you opt for the new lower tax rates that were introduced by Finance Minister, Nirmala Sitharaman in the Budget 2020.
The problems for ULIP has been the low returns, due to various administration charges and they further become unattractive with the new tax slabs in place.
The one advantage of the ULIPS is that they do offer you insurance. However, to meet that need you always have the option of taking an insurance. Why mix an insurance and investment product.
4. Bank tax saving deposits
Again, bank tax saving deposits qualify for Sec80C benefits. Like ELSS and ULIPs, if you choose the new tax lower tax slabs, there is no point in buying a tax saving bank deposits.
Another problem for this investment is that it offers a very low annual interest rate of 6.2 to 6.5 per cent, depending on the bank. A better option would be the National Savings Certificate, where at least your interest rates are higher at 7.9 per cent per annum.
5. Dividends on mutual funds
If you are a mutual fund investor, who has been opting for dividends, from next financial year, you would be taxed. This means it is better to opt for growth plans in place of dividends.
All in all, the Union Budget did little to encourage investment by introducing a new lower tax regime. In the coming years what looks certain is that many tax exemptions would be done away with.