Budget
ICYMI: The budget in 5 minutes
Summary
The number of individual, punting on stocks and their derivatives like futures and options, has gone up dramatically in recent years. The government has proposed to increase the securities and transaction tax on futures and options to 0.02% and 0.1%, respectively.
On 23 July, finance minister Nirmala Sitharaman presented the Narendra Modi government’s first budget after the Lok Sabha election. Her budget speech was 14,703 words long—slightly longer than the 2023 speech, but nowhere as long as the ones in 2020 and 2019. Let’s look at the major points in the budget.
Personal income tax
When it comes to personal income tax, a few significant changes have been proposed. First, the standard deduction available to salaried employees will go up to ₹75,000 from the current ₹50,000. Second, income tax rates for those in the new tax regime—used by more than two-thirds of those filing income tax returns—have been revised. This will lead to savings of up to ₹17,500 during the year. Third, the government has proposed a comprehensive review of the Income Tax Act to make it
No indexation on real estate
This was the government’s big move in the budget. So far, long-term capital gains made on selling real estate came with indexation benefits—that is, inflation could be taken into account while calculating capital gains, which led to substantially lower tax outflows. This has ceased to exist, with effect from 23 July. This is a bold move which should rein in, to some extent, those buying residential real estate only for investment purposes—turning it into a financial asset, keeping homes locked and driving up prices—and make things difficult for those wanting a home to live in. These gains will now be taxed at 12.5%.
Read more: Budget 2024: Capital pains and other long-term letdowns
Stocks and derivatives
The number of individuals—particularly the youth—punting on stocks and their derivatives like futures and options, has gone up dramatically in recent years. In order to disincentivize such behaviour, the government has proposed to increase the securities and transaction tax on futures and options to 0.02% and 0.1%, respectively. Further, the short-term capital gains tax on shares has been increased to 20% from the current 15%. The long-term capital gains tax on gains beyond ₹1.25 lakh has been increased to 12.5% from the current 10%.
Employment-linked incentives
There are plans to introduce employment-linked incentives for individuals entering the workforce in formal sectors. The government plans to carry out a direct benefit transfer of a month’s salary in three installments to fresh employees, up to a limit of ₹15,000, for those earning up to ₹1 lakh. Companies creating new jobs in the manufacturing sector will get incentives on the contributions they make to the Employees’ Provident Fund.
Bihar and Andhra Pradesh
The Bharatiya Janata Party does not have a majority on its own in the Lok Sabha and is dependent on the Janata Dal (United) and Telugu Desam Party—parties operating primarily in Bihar and Andhra Pradesh, respectively. In this backdrop, the budget has proposed to support the development of several road connectivity projects in Bihar. Further, recognizing Andhra Pradesh’s need for a capital city, the government has decided to facilitate special financial support through multilateral development agencies. ₹15,000 crore will be arranged in 2023-24, with additional amounts in future years.
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Fiscal deficit
In 2024-25, the government plans to reduce its fiscal deficit to ₹16.1 lakh crore or 4.9% of the gross domestic product (GDP). Fiscal deficit is the difference between what a government earns and what it spends. GDP measures the size of an economy. Fiscal deficit in 2023-24 was at 5.6% of the GDP. So, the government is trying to continue to cut down on the fiscal deficit, which had swelled to 9.2% in 2020-21 due to the spread of the pandemic.
Direct taxes
In the recent years, the government has collected a higher amount of direct tax through personal income tax than through corporation tax. The trend is expected to continue in 2024-25 as well, with the government hoping to earn ₹10.2 lakh crore through corporation tax and a massive ₹11.9 lakh crore through personal income tax. There are two reasons for this trend. First, corporates now pay a lower rate of income tax than in the past. Second, in recent years, collections of personal income tax have probably been boosted thanks to investors trading more and more in stocks and their derivatives like futures and options.
The stock market
The BSE Sensex, India’s most popular stock market index, closed the day flat at 80,429 points, down by less than 0.1%. But the index did gyrate through the day and was down by more than 1.6% at one point, when the market came to know that capital gains on buying and selling stocks will be taxed at higher rates. Nonetheless, by the close of trading, those losses had more or less been recovered, suggesting all over again that while the marketmen may try to outwardly project the importance of the budget, over the years, this government document has mattered less and less to them.
