The first budget of Modi 3.0 (Budget 2024) has been presented. On Tuesday, Finance Minister Nirmala Sitharaman made many big announcements in her budget speech, which included announcements related to everyone from taxpayers to stock market investors. Their impact was also visible on the market. When the announcement regarding increase in capital gains tax was made in the budget, the mood of the already sluggish stock market deteriorated and Sensex slipped by 1200 points, while Nifty slipped by 500 points. But if we look carefully, it has advantages as well as disadvantages. Let us understand how in five points…
1- What changes were made in the budget?
First of all, let us talk about what changes Finance Minister Sitharaman has made in the Capital Gains Tax in Budget 2024? Actually, it has been announced to increase Long Term Capital Gain (LTCG) tax. The Finance Minister has also increased the long term capital gains tax on certain assets from 10 percent to 12.5 percent. At the same time, short term capital gains tax on some assets has also been increased from 15 to 20 percent. Short term capital gains tax has been increased by 5 percent, while long term capital gains tax has been increased by 2.5 percent.
2- More share will have to be paid on earnings from stock market
The government’s decision to increase capital gains tax is being considered a big blow for stock market investors, because now investors will have to pay a higher share in the income from stock market investment. It is understood in this way that if you buy a stock, you may suffer either profit or loss. If you make a profit, then the tax that the government takes on it is called Capital Gains Tax.
There are two brackets, first is Long Term Capital Gains Tax (LTCG) and Short Term Capital Gains Tax (STCG). To understand this in simple words, if after investing in a share you sell it within 1 year, then STCG will be charged from you and if you sell after 1 year, then LTCG will be charged on the income. Till now tax on long term profits had to be paid at the rate of 10 per cent, which has now become 12.5 per cent.
3- The stock market declined due to this reason
The effect of investors’ unhappiness was immediately visible in the form of negative response after this announcement. Due to the increase in the burden on investors in the share market due to this decision of the government, the mood of the stock market suddenly deteriorated on the day of the budget and a big fall was seen in Sensex-Nifty. Its effect is being seen in the stock market even on Wednesday after the budget and since the opening in the morning, Sensex and Nifty are seen blinking. While Sensex is trading 100 points down, Nifty is trading down 30 points.
4- Small investors got benefit
On one hand, the increase in capital gains tax has dealt a blow to those who have made big investments in the stock market, on the other hand, another announcement of the Finance Minister related to this has left small investors in a tizzy. Actually, in the budget, the government has increased the limit of exemption of capital gains tax. Earlier you did not have to pay any tax on profits up to Rs 1 lakh, but now it has been increased by an additional Rs 25,000. That means it has been increased to Rs 1.25 lakh and this much profit will now be tax free. This change will be applied to both short term capital gains and long term capital gains. However, this change will especially benefit small investors.
While the impact of the increase in capital gains tax was seen in the form of a fall in the stock market, the impact of the announcement of additional exemption of Rs 25,000 was seen on Tuesday itself in the form of a sharp recovery from the sharp fall. In such a situation, it can emerge as a market booster.
5- Relief also came with shock
However, this increase in capital gains tax has definitely increased the burden of those investing in the stock market. But on the other hand you should also understand that with the increase in the exemption limit for Long Term Capital Gains Tax you can potentially save money on capital gains taxes even if the LTCG tax rate increases slightly to 12.5% (10% %) has happened.