🏦 The USA, India & Capital Gains Tax

by Sreetama

Glitch. A Technical Hitch.

Yesterday, the National Stock Exchange halted trading in the F&O Market at 11:40 am & the cash market at 11:43 am. The index price feed for several indices froze for several brokers. The trading was resumed at 3:45 pm hours and the trading hours were extended till 5:00 pm.

This is not the first time the world’s largest stock exchange has faced a technical glitch.

The USA, India & Capital Gains Tax

Janet L. Yellen. The new Treasury secretary of the USA recently became known for her love for Indian Cuisine. She has given only a handful of interviews since taking up her post about a month ago. And one thing she indicated was a tax on unrealized capital gains. CBPP.org estimated that unrealized capital gains account for as much as 55% of assets in estates worth more than $100M.

Let’s crunch on some samosas now…

What is Capital Gains Tax? Capital gains tax is a tax on the profit that investors realize on the sale of their assets. If you sell shares that you own in a company and make a profit when you sell them, you pay a tax on the profit. The current rate in the USA is up to 37%, based on the asset type, period of holding, and the income of the investor.

Now, What is Unrealized Capital Gains? Janet Yellen wants investors to pay a tax on the increase in the value of stock every year, even if it is not sold! For example, assume the price of a stock goes from $100 to $150 in one year but you haven’t sold it – you may still have to pay a tax on that $50 increase. It doesn’t matter whether you’ve made a profit or not. That’s a tax on unrealized capital gains.

“The proposal for a capital gains tax in the US may push global money towards markets like India.” That’s what headlines were saying.

Investor Sentiment. This might make investment less attractive. Investors might take to foreign emerging markets. India is a great example. We’ve already seen a giant-sized inflow of capital from FIIs (Foreign Institutional Investors). 2020 alone, even after accounting for COVID-19, India received $22.5B or INR 1.7 lakh crore worth of foreign investor money for equities.

Fear of a Bubble. “In fact, over the past two weeks, weak balance sheet stocks have outperformed those with strong balance sheets—a sign that the equity market is not yet worried about risks that could jeopardize corporate funding requirements.” – Goldman Sachs.
The fresh inflow of dollars would only make the bubble bigger and bigger. Will the collapse of the market (that many expected) be delayed due to this?

But obviously, there’s always more to investment than the ‘tax’ factor.

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And Also This

The “Herculean task” to “revive South Africa’s economy” in its most “important budget yet.” The citizens are looking for Mboweni to provide direction on how the country plans to get out of the hard dealt punch by Covid19. A vaccine rollout program 💉 worth 24 Billion South African Rands was announced. Meanwhile, no new taxes were announced. Only a small percentage of the country pays tax, so any effort to finance the government’s coffers by increasing taxes might be unpopular.

What Montana Doesn’t Have? – Crazy Tax Story

Imagine you buy a $3.3M car in the USA. (yes, just a fantasy). The sales tax alone on that car in California might exceed $300k. But what if you bought the same & paid only a few 1000 bucks in fees? Sounds awesome, right?

Guess what Montana doesn’t have? A sales tax!! Some of its counties charge no local vehicle tax, either. Yearly registration is $217 for cars up to four years old, plus $825 for cars worth more than $150,000. That’s why out-of-state collectors began setting up limited liability companies, or LLCs, with Montana addresses for the sole purpose of purchasing their exotic cars tax-free. There are other states that don’t have a sales tax, but Montana doesn’t have any sort of car inspection, either.

Is this legal? Montana doesn’t seem to mind the revenue, but there could be real implications for getting car insurance—plus, your home state may come looking for you. How many Bugattis per capita????

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