Union Budget 2024: What investors expect on capital gains tax and financial market reforms?

Investors have their eyes on Finance Minister Nirmala Sitharaman as she will present the first full budget under Prime Minister Narendra Modi’s third consecutive term. Investors and taxpayers are hoping for a reduction in the capital gains tax.

Capital gains tax is applicable on the profit arising from the selling of any movable or immovable asset. Depending on the holding period of one to three years, capital gains tax ranges from 10% to 30%. Investors are hoping that a uniform holding period across equities and mutual funds will be a welcome move.

Certain experts are also hoping for a reduction in long-term capital gains (LTCG) along with bringing back indexation for LTCG to offer further benefits to taxpayers. At present, selling of equity-oriented mutual funds within a year results in a 15% short-term capital gains tax. Meanwhile, an LTCG of 10% is applicable on gains of over ₹1 lakh if the listed equities are sold after a year.

It is also likely that investors may see a hike in the Securities Transaction Tax (STT). STT is applicable on every purchase and sale of equities listed on the exchanges.

Representatives for India’s capital markets have recommended a hike in STT on high-frequency traders. This will also impact the growing number of retail participants in the Futures & Options segment (F&O), many of whom have faced substantial losses.

The stock markets have several expectations from the upcoming budget and are not expecting any surprises that will have a negative impact on the markets. However, the budget might be in line with a more long-term economic growth prospect with a higher focus on the rural sector and job creation.

Given India’s GDP growth, it is likely that the government will introduce reforms on the personal taxation front to increase consumption. Additionally, the government will also continue spending towards infrastructure and social development.