On July 23, Finance Minister Nirmala Sitharaman presented the Union Budget 2024, bringing a mix of relief and reform aimed at strengthening India's economic landscape. The budget introduced marginal income tax relief for the middle class and significant changes in the capital gains tax regime, reflecting the government's focus on economic growth and investment stability.
One of the key highlights of the Union Budget 2024 was the increase in the standard deduction for salaried employees. Sitharaman announced a 50% raise in the standard deduction, elevating it to ₹75,000. This change aims to provide middle-class taxpayers with more disposable income, enhancing their consumption power and financial comfort.
Additionally, the budget introduced modifications to the tax slabs for those opting for the new income tax regime. This move is expected to simplify tax processes and encourage more taxpayers to switch to the streamlined tax structure. Prime Minister Narendra Modi hailed the budget as a catalyst for making India the third-largest economy in the world by 2047, building on its current position as the fifth largest.
For those interested in detailed budget documents, they can be accessed through the Union Budget Mobile App, available on both Android and iOS platforms. The budget speech and related documents are also accessible on the official web portal at www.indiabudget.gov.in.
In a significant development, Finance Minister Sitharaman announced a comprehensive review of the Income Tax Act, 1961. Ravi Agrawal, Chairman of the Central Board of Direct Taxes (CBDT), stated that the CBDT will work over the next six months to simplify the Act, incorporating inputs from chartered accountants and other stakeholders. This initiative underscores the government's commitment to making tax processes more efficient and taxpayer-friendly.
Agrawal highlighted that around 66% of the over 4 crore taxpayers have opted for the new income tax regime for filing returns. The government's focus remains on simplifying tax processes, including filing income tax returns (ITRs) and conducting other business transactions with the Income Tax Department.
The budget also introduced changes to the capital gains tax on listed equity, effective from July 23. The rate of short-term capital gains tax on units of business trusts, listed stocks, and equity-oriented mutual funds has gone up from 15% to 20%. The Income Tax Department issued FAQs to clarify these changes, emphasizing the benefits of simplified tax structures for compliance and record-keeping.
Revenue Secretary Sanjay Malhotra explained that the objective behind the capital gains tax adjustments is to encourage retail investors to hold their investments for longer periods. The proposal aims to benefit long-term investors while ensuring that the changes primarily impact higher income categories. The exemption limit for long-term capital gains (LTCG) has been increased to ₹1.25 lakh, providing relief to middle and low-income investors.
Malhotra also addressed the hike in securities transaction tax (STT) on futures and options (F&O), stating that it serves as a signal to retail investors to steer clear of speculative trades. Studies by the Securities and Exchange Board of India (SEBI) indicate that a significant majority of retail investors in F&O incur losses, making this an important measure to curb speculative behavior.
The announcement of these tax reforms led to immediate reactions in the stock market. On budget day, the BSE Sensex dropped by 106.81 points, or 0.15%, closing at 71,645.30, while the NSE Nifty declined by 28.25 points, or 0.13%, to end at 21,697.45. This volatility reflects the market's initial adjustment to the new tax policies.
Saurabh Jain, Vice President of Research at SMC Global Securities, commented on the impact of the STT rate hike on equity and index traders, predicting a short-term negative effect on the Indian stock market. Jain noted that the government's intention to raise the exemption limit for capital gains aims to balance the market dynamics by discouraging speculative trading while promoting long-term investment.
While the Union Budget 2024-25 aims to foster macroeconomic growth and fiscal stability, its welfare implications remain mixed. The budget's success will largely depend on the effective implementation of its policies, a challenge given the government's history of delayed publicly funded projects. The budget also falls short in addressing underlying economic issues such as inflation and ensuring equal access to resources for human capital development.
In conclusion, the Union Budget 2024 marks a significant step towards tax simplification and investment reform, with a clear focus on boosting the middle class and promoting long-term investment. However, its overall impact will hinge on successful execution and addressing broader economic challenges.