Tax Changes in Budget 2024: What Investors Need to Know?
Tax changes in the budget are one of the foremost concerns for investors and individuals, and the Union Budget 2024 was no different. All eyes were on Finance Minister Nirmala Sitharaman, and expectations were running high that the FM would propose tax changes. She did. What are they? Let’s find out.
Overview of major tax changes
The FM has hiked the standard deduction in the new tax regime from Rs 50,000 to Rs 75,000 for FY 24-25. She has also made significant changes in the tax slabs in the new regime. On the expected lines, no changes were announced in the old tax regime, showing the government’s focus on incentivising the new regime. The table shows the proposed changes in tax slabs under the new tax regime.
| Tax Brackets for FY 23-24 | Tax Rate | New Tax Brackets for FY 24-25 | Tax Rate |
|---|---|---|---|
Up to Rs 3 lakhs | Nil | Up to Rs 3 lakhs | Nil |
Rs 3 lakhs - Rs 6 lakhs | 5% | Rs 3 lakhs - Rs 7 lakhs | 5% |
Rs 6 lakhs - Rs 9 lakhs | 10% | Rs 7 lakhs - Rs 10 lakhs | 10% |
Rs 9 lakhs - Rs 12 lakhs | 15% | Rs 10 lakhs - Rs 12 lakhs | 15% |
Rs 12 lakhs - Rs 15 lakhs | 20% | Rs 12 lakhs - Rs 15 lakhs | 20% |
More than Rs 15 lakhs | 30% | More than Rs 15 lakhs | 30% |
The FM has also increased the long-term capital gains taxes (LTCG) on financial and non-financial assets from 10% to 12.5%. However, she has set the exemption limit on them at Rs 1.25 lakhs per year. Short-term capital gains on certain financial assets have been increased from 15% to 20%.
Source: Times of India, Cleartax and Live Mint
Impact on individual investors
In her Budget 2024 speech, the FM said that hiking the standard deduction and changing tax slabs under the new regime would help taxpayers save Rs 17,500 . While this surplus money can help you with an investible surplus to invest in various financial instruments as per your goals, the hike in LTCG and STCG taxes can bring down the real income you make from various financial and non-financial assets.
Source: Times of India, Indiatimes/Business
Impact on corporate investors
Corporate investors may not find a hike in capital gains tax promising. The hike could dampen the enthusiasm and reluctance to cash in on their profits. The government's expectation of higher revenue from the increased tax rates might not materialise as anticipated. If investors choose to sit on their gains rather than realise them, it could lead to lower tax collection than projected.
Strategic adjustments for investors
Given the proposed tax changes in the Union Budget 2024, you should consider making strategic adjustments to your financial plans. The hike in capital gains tax rates presents a new challenge. You may want to reassess your portfolio management strategies, particularly focusing on the timing and frequency of your investment sales. With the higher tax rates, it becomes crucial to carefully plan when to realise gains and hold investments for longer periods to minimise tax impact.
Furthermore, the new threshold of Rs 1.25 lakhs per year for capital gains introduces an essential consideration for portfolio balancing. You could structure your investments and realisations to stay below this threshold when possible.
Expert opinion and analysis
While experts have welcomed the hike in the standard deduction and other proposed changes in the tax slabs, the reactions aren’t positive regarding a hike in capital gains taxes. Even markets have reacted negatively to his hike, with the Sensex dropping over 500 points . There’s a feeling that the hike in capital gains taxes can hurt investors and companies’ sentiments looking to raise money.
Source: NDTV.com/Business
Comparative analysis with previous budgets
The government introduced LTCG taxes on gains above Rs 1 lakh at 10% without indexation in the Union Budget 2018. The same budget also brought back the standard deduction (Rs 40,000 then). While the standard deduction was hiked to Rs 50,000 in subsequent budgets, LTCG taxes remained the same. Both have been hiked in the Union Budget 2024.
Long-term implications
One will have to wait and watch to know the long-term implications of the tax changes, particularly LTCG and STCG taxes. Markets are expected to be in a sombre mood for some time following the announcements. However, the Indian long-term growth story is very much intact and following fundamental principles of investing, such as asset allocation and diversification can help you with smart investment choices.
Source: Economic Times
Conclusion
While the proposed hike in the standard deduction and changes in tax slabs are likely to give individuals more investible surplus, the hike in LTCG and STCG taxes may dampen investors’ confidence. That said, it’s wise to consult with a professional before undertaking major decisions that could impact your tax outgo.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. It is not produced by the desk of the Kotak Securities Research Team, nor is it a report published by the Kotak Securities Research Team. The information presented is compiled from several secondary sources available on the internet and may change over time. Investors should conduct their research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.
Investments in the securities market are subject to market risks, read all the related documents carefully before investing. Please read the SEBI-prescribed Combined Risk Disclosure Document before investing. Brokerage will not exceed SEBI’s prescribed limit.
