As an individual taxpayer and an investor, July 23rd would have been a momentous day for you – the day of the first full Budget of Prime Minister Narendra Modi’s third term in power – a Budget which is expected to set the tone for the next four years. All of us had a variety of expectations and hopes, as we awaited the announcements by Finance Minister Nirmala Sitharaman, and now it is time to evaluate how many of them have been met. At the outset, the Budget can be considered a fairly good one, especially from a macroeconomic point of view – a major problem facing the Indian economy, over the last few years, was slowing consumption and the government was required to bring forth measures to boost the same. Accordingly, the Budget has overwhelmingly focused on the enormous youth force in the country, with its slew of initiatives aimed at promoting jobs and skilling measures, while also offering tax relief to the growing middle class – the two societal pillars which can drive consumption forward, thereby powering the ongoing India growth story.
Personal finance & employment scheme updates
In a significant move for salaried individuals and taxpayers, the Budget has introduced revised income tax slabs under the new tax regime. The updated tax slabs in the new regime are as follows: INR 0-3 lakh – Nil; INR 3-7 lakh – 5%; INR 7-10 lakh – 10%; INR 10-12 lakh – 15%; INR 12-15 lakh – 20%; and INR 15 lakh and above – 30%. Alongside these changes, the Finance Minister announced an increase in the standard deduction limit for salaried individuals, raising it from INR 50,000 to INR 75,000, enabling you to claim an additional INR 25,000 off your tax outflow. Additionally, the government has unveiled three schemes aimed at boosting employment through the Employees’ Provident Fund Organisation (EPFO) for new entrants in the organised sector, with a total central allocation of INR 1.07 lakh crore. These schemes will be based on EPFO enrolment and will focus on recognising first-time employees while providing support to both employees and employers. The initiative is expected to benefit 210 lakh young people[1]. The Budget also introduced a new initiative called NPS Vaatsalya, allowing parents to contribute to their minor children’s National Pension System (NPS) accounts – these accounts can be seamlessly converted into regular NPS plans once the children reach the age of 18[2].
Assessing the investment scenario
As an investor, you may have been disappointed by the unexpected hike in long-term capital gains tax on equity investments, from 10% to 12.5%, but the scenario is not all gloom and doom, as indicated by the fact that the benchmark indexes recouped most of the day’s losses, before the end of the trading session on July 23rd. Firstly, the government’s proposal to raise the capital gains exemption limit on certain financial assets to INR 1.25 lakh annually is a noteworthy development for the middle and upper middle class. Further, in a move to simplify the tax regime, the government has streamlined capital gains into two distinct holding periods: 12 months for listed securities and 24 months for all other assets. This adjustment is particularly advantageous for investments in real estate, Real Estate Investment Trusts and Infrastructure Investment Trusts, as the long-term holding period is now reduced to 12 months, down from the previous 36 months[3].
While investors cheered for the reduction of LTCG tax on real estate and REITs to 12.5%, from 20%, the removal of indexation benefit was perceived negatively, prompting the government to later revise the tax framework, giving taxpayers the option to select between a reduced tax rate of 12.5% without indexation or a higher rate of 20% with indexation for properties purchased before July 23, 2024 – the date of the Budget. This adjustment, introduced via an amendment to the Finance Bill 2024, allows individuals and Hindu Undivided Families (HUFs) to calculate their taxes under both rates and opt for the lower tax amount[4].
Separately, debt mutual fund schemes remain subject to taxation at the investor’s applicable slab rate regardless of the holding period.
The Finance Minister also announced an increase in the securities transaction tax (STT) on futures and options (F&O) trades starting October 1 – this adjustment aims to discourage retail investors from excessively engaging in these high-risk instruments and address concerns about heightened activity in the F&O market. Specifically, the STT on the sale of options in securities will rise from 0.0625% to 0.1% of the option premium, and the STT on the sale of futures in securities will increase from 0.0125% to 0.02% of the traded price[5]. This change reflects the government’s effort to moderate speculative trading and encourage more stable investment practices. The government has also reduced import duties on gold and silver from 15% to 6%, a move anticipated to stimulate retail demand and investment in these precious metals. The Finance Minister further highlighted the ongoing efforts to simplify and rationalise the customs duty and GST tax structures, promising a review and adjustment over the next six months to enhance domestic value addition in gold and precious metal jewellery.
These measures collectively signal a strategic shift from the government’s behalf, aimed at promoting improved personal finances and responsible investment behaviours, thereby bolstering the domestic economy optimally and for the longer term.
Disclaimer – Radhika Gupta, is the MD & CEO at Edelweiss Asset Management Limited (EAML) and the views expressed above are her own.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY
[1]https://www.deccanherald.com/business/union-budget/union-budget-2024-what-the-budget-has-for-common-man-3118270
[2]https://www.moneycontrol.com/news/india/how-will-budget-2024-impact-you-heres-a-look-12775855.html
[3]https://www.business-standard.com/budget/news/budget-2024-fm-hikes-taxes-on-equity-trading-stcg-ltcg-stt-raised-124072301237_1.html
[4] https://www.businesstoday.in/personal-finance/real-estate/story/big-relief-for-home-buyers-centre-makes-revisions-in-ltcg-indexation-on-real-estate-details-inside-440436-2024-08-06
[5]https://www.livemint.com/budget/budget-2024-for-common-man-complete-list-of-whats-cheaper-dearer-with-modi-3-0s-first-union-budget-11721714371025.html
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