Union Budget 2024 | Raised capital gains tax a market dampener

STT on futures and options also increased

In a reflection of the worries laid out in the Economic Survey and concerns raised by the Reserve Bank of India Governor, the Union Budget went after the rush of investors to the stock and e-derivatives markets.

She raised capital gains tax on long term and short term investments. Predictably, the rise was more stiff on short term gains from particular financial assets, going up from 15 per cent to 20 per cent. The levy on other capital gains (financial or otherwise) were retained at applicable tax rates. Going a tad lighter on long-term capital gains the tax was edged up to 12.5 per cent from 10 per cent, while raising the exemption limit to Rs 1.25 lakh a year (from the present limit of Rs 1 lakh).

The budget stipulated that any listed financial assets (equity shares, currency, gold, silver) held for over a year is classified as long-term, while it is two years holding period for unlisted financial assets (real estate, motor vehicles). Incidentally, capital gains come from sale of assets such as realty, stock, bonds and also collectibles such as artwork.

The FM also hiked the Security Transaction Tax on futures and options. “It is proposed to increase the rates of STT on sale of an option in securities from 0.0625 per cent to 0.1 per cent of the option premium, and on sale of a futures in securities from 0.0125 per cent to 0.02 per cent of the price at which such futures are traded,” she announced in her budget speech.

In the case of share buybacks, she spared the companies purchasing the shares of the present additional tax, while the transaction will continue to be treated as dividend in the hands of the seller and taxed. In a further consideration to corporate entities, they will now be allowed to claim the purchase as “capital loss”.

“It came as an unpleasant surprise that while rationalising the capital gains structure, the tax has been raised even on long-term capital gains across asset classes,” noted Aashish Somaiyaa, CEO, WhiteOak Capital Asset Management.

“Capital gains tax was expected to be increased in the budgets over 2-3 years. Surely the markets will react but it is not very negative,” said Vinod Nair, Head of Research, Geojit Financial Services.

Union Budget 2024 LIVE | Making a record for any Finance Minister, Nirmala Sitharaman presented her 7th consecutive Union Budget on July 23, 2024 under the Modi 3.0 government. This Budget brought tax relief for the middle class, while focusing on jobs through skilling, incentivising employers. Track the latest coverage, live news, in-depth opinions, and analysis only on Deccan Herald. Also follow us on WhatsApp, LinkedIn, X, Facebook, YouTube, and Instagram.