The first budget of Modi 3.0 (Budget 2024) has been presented. On Tuesday, Finance Minister Nirmala Sitharaman made several big announcements in her budget speech, which included announcements related to taxpayers as well as stock market investors. Their effect was also seen on the market. When the announcement related to increase in capital gains tax was made in the budget, the mood of the already sluggish stock market deteriorated and the Sensex slipped by 1200 points, while the Nifty slipped by 500 points. But if we look carefully, there are benefits along with its losses. Let us understand in five points how…
1- What changes were made in the budget?
First of all, let us talk about what changes has Finance Minister Sitharaman made in the capital gains tax in Budget 2024? Actually, an increase in the long term capital gain (LTCG) tax has been announced. 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, the 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- You will have to pay more share on the earnings from the stock market
The government’s decision to increase capital gains tax is being considered a big blow to stock market investors, because now investors will have to pay a higher share of the income from stock market investment. Let’s understand it this way that if you buy a stock, you can have either profit or loss. If you make a profit, then the tax that the government levies on it is called Capital Gains Tax.
There are two brackets in it, first Long Term Capital Gain Tax (LTCG) and Short Term Capital Gain Tax (STCG). To understand it in simple words, if after investing in a stock, you sell it within 1 year, then STCG will be taken from you and if you sell it after 1 year, then LTCG will be charged on the earnings. Till now, in the long term, tax had to be paid at the rate of 10 percent on profits, which has now become 12.5 percent.
3- This is the reason why the stock market fell
The effect of investors’ unhappiness was seen in the form of immediate negative response after this announcement. Due to the increasing burden on those investing in the share market due to this decision of the government, the mood of the share market suddenly deteriorated on the day of the budget and a big drop was seen in Sensex-Nifty. Its effect is being seen in the share market on Wednesday after the budget as well and since the morning open, Sensex and Nifty are seen playing hide and seek. While Sensex is trading down by 100 points, Nifty is trading down by 30 points.
4- Small investors got benefit
On one hand, while the increase in capital gains tax has come as a shock to those who have invested heavily in the stock market, another announcement by the Finance Minister related to this has brought a lot of relief to small investors. 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 an additional increase of Rs 25,000 has been made in it. That is, it has been increased to Rs 1.25 lakh and this much profit will now be tax free. This change will be applicable on both short term capital gain and long term capital gain. 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 an 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 booster for the market.
5- Relief came along with the shock
However, this increase in capital gains tax has definitely increased the burden on those investing in the stock market. But on the other hand, you should also understand that with the increase in the exemption limit of long term capital gains tax, you can potentially save money on capital gains taxes, even though the LTCG tax rate has increased slightly to 12.5% (up from 10%).