The Indian stock market benchmarks, Sensex and Nifty 50, each fell nearly 2% after Finance Minister Nirmala Sitharaman’s Union Budget 2024 speech proposed higher taxes on market gains, dashing hopes for unchanged tax rates. Furthermore, the Union BUdget announcements did not meet the middle-income group’s expectations for a tax rebate of up to ₹10 lakhs, contributing to the market’s negative reaction.
In her budget speech, Finance Minister Sitharaman announced hikes in both long-term and short-term capital gains taxes. The long-term capital gains (LTCG) tax was raised from 10% to 12.5%, while the short-term capital gains (STCG) tax was increased from 15% to 20%.
The government’s proposal to increase the tax on capital gains and trading derivatives resulted in a significant downturn in the stock markets. The S&P BSE Sensex fell below the 80,000-mark, hitting a low of 79,224, down 1,542 points from the day’s high of 80,766. Similarly, the NSE Nifty 50 index plunged to an intra-day low of 24,431.
The market’s decline was further exacerbated by the proposed increase in the Securities Transaction Tax (STT) on futures and options of securities to 0.02% and 0.1%, respectively. This tax is levied on the purchase and sale of securities listed on stock exchanges. The Indian rupee also fell to a record low against the US dollar, reaching 83.69.
Additionally, the FM proposed raising the exemption on LTCG from ₹1 lakh to ₹1.25 lakh per year. Although there was some relief for the lower salaried class, with an increase in the income tax slab for the 5% and 10% brackets by ₹1 lakh each, this did not offset the market’s concerns over the higher capital gains taxes.
Commenting on the budget announcements Dr. Niranjan Hiranandani, Chairman Hiranandani and NAREDCO said, “The reduction in long-term capital gain tax to 12.5%, aligning the holding period for long-term capital gains with equity shares at 24 months, will boost investment and sector competitiveness. Encouraging state governments to reduce stamp duty and development premiums will bolster urban housing growth and make affordable housing more accessible.”
A real-time trader, Samyak Jain, spoke to Marksmen daily expressed his views on budget and its impact on the share market, and said, “Trading on budget day has always been a difficult task as you don’t know how market will react to certain news. This year the income tax on capital gains have increased, the market didn’t react to it in a positive way and was very unexpected. I’m yet bullish on markets and would be hoping for higher highs”.
