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Plans on proposed tax code
July, 06th 2010

Should I discontinue my Systematic Investment Plan (SIP) in the tax saving scheme? Should I start investing in the New Pension Scheme (NPS)? I was told that one doesnt have to pay capital gains on equity mutual fund schemes but now, it seems, these will be taxed. These are some of the queries investment advisors are flooded with these days after the proposed changes in the DTC were announced last week.

Some advisors blessed with the gift of predicting the future, it seems are offering their clients instant solutions based on what they think would be the final version of DTC. Genuine advisors those who are not ashamed to admit to their clients that they dont know the answers to these queries are telling them to wait for the final bill before taking any decision.

Yes, I am getting a lot of calls about the new proposals. I tell my clients to relax. These kind of changes can take a lot of time.

Even after the final version is unveiled, it could be very different from the current proposals, says Kartik Jhaveri, director, Transcend Consulting, a wealth management firm. Even if the changes in the DTC happen soon, we will still get enough time to take remedial actions so that one wont lose out on the tax front on investment. I tell my clients that we will wait to see the final version before taking any decision.

A wealth advisor, who doesnt want to be named, said The problem with some clients is that they dont read the fine print. They believe that these proposals have already been implemented. Therefore, they want to stop their SIPs in all equity mutual fund schemes immediately so that they dont have to pay any capital gains. I have a tough time convincing them to continue with their investment plan and wait for the final version of DTC.

We are telling our clients, sitting on huge capital gains, that we would book profits in this financial year so that they dont have to pay capital gains tax, says D Sundararajan, consultant, Trendy Investments . But this is only for people who have made a lot of capital gains, not for those who are sitting on losses, he clarifies . Jhaveri also says this is one method he is suggesting to some of his clients. I have some clients who have been holding on to some stocks for more than 10 years. They can book capital gains and re-enter the market at a later date to avoid paying capital gains.

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