Union Budget 2024: Key Tax Reforms Affecting Equity Markets and Investors

On July 23, 2024, Finance Minister Nirmala Sitharaman presented the Union Budget for the seventh time, unveiling a slew of tax reforms aimed at bolstering revenue streams while fostering growth in the Indian economy. Central to the budget were amendments in direct taxation that significantly impact equity markets and investors alike. Let’s delve into the key reforms introduced in the Finance Bill 2024:

1. Capital Gains Tax Adjustments:

One of the most notable changes is in the realm of capital gains tax. Long-term capital gains on all financial and non-financial assets will now attract a uniform tax rate of 12.5%. For specific assets like listed equity shares and equity-oriented mutual fund units under section 112A, the exemption limit for capital gains has been raised to ₹1.25 lakh per year. Previously, these assets enjoyed a lower tax rate of 10% for long-term gains. Additionally, short-term capital gains tax on listed equity shares and equity-oriented mutual fund units has been increased from 15% to 20%, reflecting a move towards higher tax incidence on shorter investment horizons.

2. Securities Transaction Tax (STT) Revision:

To broaden the tax base and discourage speculative trading, the Finance Minister proposed significant revisions in the Securities Transaction Tax (STT). Effective from October 1, 2024, the STT on futures and options (F&O) of securities will be set at 0.02% and 0.1%, respectively. This represents a substantial increase from the previous rates, aiming to stabilize financial markets and protect retail investors from speculative risks.

3. Simplification of TDS on Mutual Fund Units:

In a bid to streamline tax procedures, the budget introduces the withdrawal of the 20% Tax Deducted at Source (TDS) on the repurchase of units by mutual funds or UTI, effective from October 1, 2024. This simplification aims to reduce administrative burdens and enhance investor ease in mutual fund transactions.

4. Abolishment of Angel Tax:

Recognizing the importance of supporting startups and fostering innovation, the government has abolished the controversial angel tax. This tax, previously levied on capital raised by unlisted companies from Indian investors when the share price exceeded fair market value, had been a significant deterrent for startup funding. The removal of angel tax is expected to boost entrepreneurial spirit and attract more investment into the burgeoning startup ecosystem.

5. Tax on Buyback of Equity Shares:

Another pivotal change introduced in the Finance Bill 2024 is the imposition of tax on income received from the buyback of equity shares in the hands of shareholders. Previously exempt under section 115QA, this move aims to broaden the tax base and ensure equitable taxation across various modes of corporate earnings.

Conclusion:

The Union Budget 2024 represents a strategic balancing act by the government, aiming to enhance revenue generation while fostering growth and innovation in key sectors of the economy. The reforms in capital gains tax, STT, TDS simplification, and the abolishment of angel tax underscore the government’s commitment to creating a more investor-friendly environment and supporting the startup ecosystem. However, these reforms also call for careful consideration by investors and stakeholders to navigate the evolving landscape of Indian taxation effectively.

As these changes take effect from specific dates in 2024, market participants and taxpayers alike should stay informed and consult financial advisors to optimize their investment strategies and comply with the updated tax regulations.

For more detailed insights and updates on the Union Budget 2024, stay tuned to reliable financial news sources and consult tax professionals for personalized guidance.