Tax Slabs and Provisions:
- ∙ The Budget 2024 has introduced revisions in the tax slabs under the New Regime.
New Tax slabs:
| Tax Slab for FY 2024-25 | Tax Rate |
| Upto ₹ 3 lakh | Nil |
| ₹ 3 lakh – ₹ 7 lakh | 5% |
| ₹ 7 lakh – ₹ 10 lakh | 10% |
| ₹ 10 lakh – ₹ 12 lakh | 15% |
| ₹ 12 lakh – ₹ 15 lakh | 20% |
| More than 15 lakh | 30% |
- ∙ The standard deduction has been increased to Rs 75,000 under this new regime.
- ∙ The family pension deduction has been raised from Rs 15,000 to Rs 25,000.
- ∙ To improve social security benefits, deduction of expenditure by employers towards NPS is proposed to be increased from 10% to 14% of the employee’s salary. Similarly, deduction of this expenditure up to 14% of salary from the income of employees in private sector, public sector banks and undertakings, opting for the new tax regime, is proposed to be provided.
Equity instruments Capital Gains Tax:
- ∙ Short-term capital gains tax has been increased from 15% to 20%.
- ∙ Long-term capital gains tax has been raised from 10% to 12.5%.
- ∙ The threshold for exemption on long-term capital gains has been raised from Rs 1 lakh to Rs 1.25 lakh.
- ∙ REITs/InVITs are benefited since long-term period will now be 12 months and above as compared to 36 months earlier.
Bonds and Non-Equity Instruments Taxation:
- For Listed bonds and debentures, the tax rate for long-term capital gains was 20% without indexation. The new rate for listed bonds and debentures will be 12.5%. Unlisted debentures and unlisted bonds, being debt instruments, will be taxed at the applicable rate, whether short-term or long-term.
- For Debt mutual funds, they will be taxed at slab rates irrespective of duration.
- Unlisted Bonds will be taxed at slab rates.
Real Estate Taxation:
- The Union Budget 2024 has removed the indexation benefit for property sales. This means individuals selling their property can no longer adjust their purchase price using inflation, thereby increasing their capital gains and tax liability.
- Previously, long-term capital gains (LTCG) from property sales were taxed at 20% with indexation benefits. The new tax rate for LTCG on property sales is 12.5% without the indexation benefit. The removal of the indexation benefit means higher tax obligations for those selling property. The indexation benefit allowed the purchase price to be adjusted for inflation using the Cost Inflation Index (CII), thereby reducing taxable capital gain and resulting in lower taxes paid.
For HNI investors and corporates:
- Abolish ANGEL tax for all classes of investors, it was the tax imposed on funds raised by startups from angel investors However, this implies only to funds that exceed the fair market value of the company.
- Simpler tax regime to operate domestic cruise.
- Provide for safe harbor rates for foreign mining companies (Selling raw diamonds).
- Corporate tax rate on foreign companies reduced from 40% to 35%.
Our Views:
Finance Minister Nirmala Sitharaman’s maiden Budget for the Modi 3.0 government strikes a balance between fiscal discipline and growth. The government has successfully reduced the budget deficit target from the interim estimate of 5.1% to 4.9% of GDP for 2024-2025, demonstrating its commitment to fiscal rectitude.
The gross borrowing programme remains largely unchanged at INR 14.01 lakh crores, which is a positive sign for bond markets. With the government achieving a provisional budget deficit of 5.6% for 2023-2024 and receiving a higher-than-expected dividend from the RBI, expectations were high for an improved fiscal deficit target and lower gross borrowings. This budget seems to have met those expectations, making it attractive to local and global investors in Indian fixed income assets.
Furthermore, the estimated nominal growth of 10.5% for 2024-2025 appears realistic and achievable, ticking all the right boxes for bond markets. The potential policy rate cuts by the US Federal Reserve and the expected RBI rate reduction in the October-December 2024 period add to the positive outlook for Indian fixed income assets.
Equity investors, however, need to brace for higher taxes in the future as this budget indicates a trend of increasing long-term capital gains tax rates and make it equal to other major economies (~20%). The increase in STT on F&O trades aims to curb excessive speculative trading, which has been a concern for financial regulators. While this may not completely deter investors, it is expected to cool down some activity in the derivatives segment. Nonetheless, the overall budget is a well-rounded effort, balancing the needs of different market segments while maintaining fiscal prudence.
Disclaimer:
This article should not be construed as investment advice, please consult your Investment Adviser before making any sound investment decision.
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