Budget 2024: Long-Term Market Impact of Higher Capital Gains Taxes (+ Highlights).

Budget 2024: Finance Minister Nirmala Sitharaman surprised investors when she presented the Union Budget for FY 2024-25, announcing numerous important tax reforms affecting capital gains and trading activity.

FM increased the long-term capital gains tax rate for financial and non-financial assets from 10% to 12.5%, with an annual exemption maximum of ₹1.25 lakh. Short-term gains from certain financial assets will face a tax hike ranging from 15% to 20%. Furthermore, the Securities Transaction Tax (STT) rate will be doubled from 0.01% to 0.02%, which would have a substantial impact on equities and index traders who trade Futures and Options (F&O). This hike will practically double the tax burden on equities and index dealers who engage in F&O transactions.

The finance minister Nirmala Sitharaman noted that the STT(securities transcation tax) on options as increased to 0.1% from 0.062% and on futures also increased to 0.2% from 0.0125% that is effectively from october 1st 2024 moreover the longterm-term capital gains (LTSCG) tax rises to 12.5% from 10% and short term capital gains (STCG) tax rises to 20% from 15% these may changes might slow down in market activity.

The equity benchmark indices fell significantly after the tax hikes were announced, although the immediate negative attitude is likely to diminish in a few days. Despite the immediate market reaction, some experts believe these policies will have a long-term impact on financial markets.

Budget 2024 Highlights 2024-2025

Proposed tax structure

Under the new tax regime, the tax rate structure is planned to be revised as follows:

• 0-3 lakh rupees: Nil

• 3-7 lakh rupees – 5%

• 7-10 lakh rupees - 10%

• 10-12 lakh rupees – 15%

• 12-15 lakh rupees – 20%

• Above 15 lakh rupees—30 percent

As a result of these changes, a paid employee under the new tax regime can save up to Rs 17,500/- in income tax.

Taxation Updates in Union Budget

• Capital gains exemption proposed at Rs 1.25 lakh per year.

• STT on F&O increased to 0.02% and 0.1%.

• Corporate tax rate for international companies cut to 25%.

• The LTCG limit increased from 10% to 12.5%.

• Short-term gains on certain financial assets will be 20%, with the remainder subject to the applicable tax rate.

• Long-term capital gains will be 12.5%.

• Listed financial assets held for more than one year will be classified as long-term. The TDS charge on e-commerce operators would be decreased to 0.1 percent from 1 percent.

• Tax rate of 20% on certain assets. Rest to attract suitable rates.

• Unlisted bonds and debentures, regardless of holding period, to attract CGT at the applicable rates.

• Angel Tax is abolished for all classes of investors.

• Professionals in MNCs who receive esops and then invest in movable assets abroad of up to Rs 20 lakh are decriminalized or non-penalized.

• Under the new tax structure, the standard deduction increased from Rs 50,000 to Rs 75,000.

•The deduction on family pension for pensioners would be increased to Rs 25,000.

• Salaried employees will save Rs 17,500 on income tax.

Standard deduction for salaried employees is proposed to be raised.

Finance Minister Nirmala Sitharaman said, "When it comes to personal income tax rates, I have two announcements to make for those who choose the new tax regime." The standard deduction for salaried employees is suggested to increase from Rs 50,000 to Rs 75,000/-. Similarly, the deduction on family pension for pensioners is proposed to increase from Rs 15,000/- to Rs 25,000/-. This will benefit approximately four crore salaried people and pensioners.

Attact tax rate of 12.5%

Finance Minister Nirmala Sitharaman has announced that long-term profits on financial and non-financial assets will be taxed at a rate of 12.5%.

The government aims to rationalize customs duty rates,' says FM.

Finance Minister Nirmala Sitharaman emphasized the government's determination to improve the Goods and Services Tax (GST) tax structure by simplifying and rationalizing it further. The administration plans to streamline customs tax rates, with a 15% drop in charges on mobile phones and chargers. Furthermore, in an effort to support healthcare, the government has exempted three more cancer treatment medications from customs charge.

Highlights on tax receipts

• In FY25, gross and net market borrowing are projected to be Rs 14.01 lakh crore and Rs 11.63 lakh crore, respectively.

• The fiscal deficit is estimated at 4.9% of GDP.

• Net tax collections will be estimated at Rs 25.83 lakh crore in FY25.

• The government plans to achieve a 4.5 percent fiscal deficit in 2025-26.

• Total receipts expected at Rs 32.07 lakh crore, expenditure at Rs 48.21 lakh crore in FY25.

*img source: linkedin