Finance Minister Nirmala Sitharaman dealt a blow to investors when she revealed several significant tax changes affecting trading and capital gains during the presentation of the Union Budget for FY 2024–2025.
Short-Term Capital Gains
Effective immediately, the 15 per cent tax rate on gains derived from specific financial assets will rise to 20 per cent.
The tax rate on non-financial assets is 12.5 per cent. The capital gains holding period is divided into two years for long-term capital gains and one year for short-term capital gains
Long-Term Capital Gains
All financial and non-financial assets will have a long-term capital gains tax rate increase from 10 per cent to 12.5 per cent. Furthermore, the annual exemption limit of Rs 1.25 lakh has been established for these gains.
STT Increased
In addition to other market-moving announcements, the FM said that the STT rate would be significantly increased, going from 0.01 per cent to 0.02 per cent. This hike will essentially result in index and equity traders who trade futures and options (F&O) paying twice as much in taxes.
"Regardless of the duration of the holding period, unlisted bonds and debentures, debt mutual funds, and market-linked debentures will attract tax on capital gains."
Market reactions
Following the announcement by Finance Minister Nirmala Sitharaman of an increase in the long-term capital gains tax, the equity benchmark indices entered a freefall.
The NSE benchmark nifty was trading around 24,526, a meager rise of 17.40 points, which amounts to a 0.071 per cent move on the Indian bourses. Nifty touched a day low of 24,140 points at 12.30 pm. post budget index recovered and was trading in green again.
On the other hand, BSE's benchmark sensex was trading around 80,619.03 at 02.50 pm. The index was up by 0.15 per cent, The index was bearly green with an advance of 116.95 points. Sensex touched the day low 79,400.75 points at 12.30 pm.
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The market reacted on the FM's announcement about raising LTCG (Long term Capital Gains) From 10 per cent to 12.5 per cent. which is a moderate jump in taxes on financial instrument. One notable announce that also came, the Rs 1,00,000 exemption in captipal gain was increased to Rs 1,25,000.
