As we braced ourselves to see what is in store for the Budget, there was some apprehension on how markets would react. Finance Minister Nirmala Sitharaman in her off-white saree, armed with her iconic ‘bahi khata,’ threw in some punches with some tax tweaks. The market was taken aback and soon enough, shrugged off its shoulders and moved on as if nothing happened. Here is a recap and analysis of what is in store.
Tweaking the Tax Regime: Small Steps or Giant Leaps?
The 2024-25 Union Budget introduces several changes to the tax structure, aiming to simplify and rationalize the system. Standard deduction in the new tax regime has been hiked to Rs 75,000 from Rs 50,000, while tax slabs have been tweaked to provide some relief.
| Income Range | Effective Tax Rate |
| 0-3 lakh rupees | Nil |
| 3-7 lakh rupees | 5% |
| 7-10 lakh rupees | 10% |
| 10-12 lakh rupees | 15% |
| 12-15 lakh rupees | 20% |
| Above 15 lakh rupees | 30% |
Salaried employees in the new tax regime stand to save up to Rs 17,500 in income tax. This could impact around four crore salaried individuals and pensioners. One of the key changes is the increase in the standard deduction for salaried employees, which will be raised from ₹50,000/- to ₹75,000/-. Additionally, the deduction on family pension for pensioners will see an increase from ₹15,000/- to ₹25,000/-.
These changes, while incremental, are part of a larger effort to make the tax system more citizen-friendly. The government has also announced plans to complete a comprehensive review of the Income-tax Act, 1961 in six months, potentially paving the way for more significant reforms.
However are these changes just small crumbs for the small taxpayer? Or are the breadcrumbs leaving the middle class not so sure about the impact. Our view is that the extra disposable income in the hands of taxpayers will find its way to consumption which should help the growth track that the economy is on.
Capital Gains and Investment: LTCG, STT, and Beyond
The budget introduces significant changes to capital gains taxation, potentially reshaping investment strategies across asset classes. Indexation benefits have been removed from real estate sales, and the Long Term Capital Gains (LTCG ) taxation rate has been made uniform for all asset classes. Short Term Capital Gains (STCG, for transactions in equities except funds held less than one year) has been hiked to 20% from 15% to deter excessive trading and speculation, but why not fill the government coffers with more revenues!
In case this is getting confusing, here is a table that can be a ready reckoner:
Listed Assets
| Listed Assets | Previous LTCG | Previous STCG | New LTCG | New STCG | Holding Period | Remarks |
| Stocks | 10% | 15% | 12.50% | 20% | 12 months | No changes |
| Equity Mutual Funds | 10% | 15% | 12.50% | 20% | 12 months | No changes |
| Debt and Non-Equity Mutual Funds | at your slab rate | at your slab rate | at your slab rate | at your slab rate | N/A | Previously, it was same for STCG & LTCG |
| Bonds (Listed) | 10% | at your slab rate | 12.50% | 20% | 12 months | No |
| REITs / InVITS | 10% | 15% | 12.50% | 20% | 12 months | Previously, it was 36 months |
| Equity Fund of Funds (<90% in Equity ETFs) | at your slab rate | at your slab rate | 12.50% | 20% | N/A | Previously, it was same for STCG & LTCG |
| Gold/Silver ETF | at your slab rate* | at your slab rate | 12.50% | 20% | 12 months | Previously, it was same for STCG & LTCG |
| Overseas FoFs | at your slab rate | at your slab rate | 12.50% | at your slab rate | 24 months | Previously, it was same for STCG & LTCG |
| Gold Funds | at your slab rate | at your slab rate | 12.50% | at your slab rate | 12 months | Previously, it was same for STCG & LTCG |
Unlisted Assets
| Unlisted Assets | Earlier LTCG | Earlier STCG | Now LTCG | Now STCG | Holding Period | Remarks |
| Physical Real Estate (Land/Flats) | 20% | Slab rate | 12.50% | Slab rate | 24 months | No changes |
| Physical Gold | 20% with indexation | Slab rate | 12.50% | Slab rate | 24 months | Previously, it was 36 months |
| Stocks (Unlisted) | 20% with indexation | Slab rate | 12.50% | Slab rate | 24 months | No change |
| Bonds (Unlisted) | Slab rate | Slab rate | Slab rate | Slab rate | 24 months | Earlier it was same for STCG & LTCG |
| Foreign equities/debt | 20% with indexation | Slab rate | 12.50% | Slab rate | 24 months | No change |
The Security Transactions Tax on futures and options has been increased, signaling an attempt to curb speculative trading. However, long-term capital gains up to Rs 1.25 lakh from listed equities remain exempted.
These changes aim to create a more balanced investment environment, although some landowners who sell and make a fast buck may end up paying more tax. By the end of the day, the markets seem to have shrugged off this Capital Gains Tax move saying “I don’t care as long as gains are bumper”. On a side note,the glitter of reduced customs duties on gold, silver, and platinum might just be enough to ensure no more Dubai importers getting frisked at the airports.
Business and Startup Ecosystem: From Angel Tax to Corporate Rates
In a significant move to boost the startup ecosystem, the budget abolishes angel tax for all classes of investors. This decision is expected to relieve tension for entrepreneurs and potentially attract more investment into the sector.
Why was such ‘tension’ there in the first place? Prior to the announcement of Budget 2024 angel tax in India for startups involved a complex situation. The Indian government implemented angel tax in 2012 to address money laundering concerns. Side Effect: unintentionally impact on legitimate angel investments in startups. If an angel investor funded a startup at a valuation higher than the fair market value (FMV) determined by the tax department, the difference was treated as income of the startup and taxed. This created a financial burden for young companies. Also, any disagreements about FMV often led to lengthy disputes between startups, investors, and the tax department. So much ‘tension’ and this angel tax regime resulted in creating hurdles for startups seeking early-stage funding and discouraged angel investors due to the potential tax implications.
Corporate Tax
The corporate tax rate on foreign companies has been reduced from 40% to 35%, a move that, while great for business, may not be good optics, politically speaking as opposition may pounce on it. The e-commerce sector received a boost with the TDS rate on e-commerce operators reduced from 1% to 0.1%, potentially allowing the e-commerce engine to roar again.
These measures, combined with the simplification and rationalization of GST, signal the government’s intent to create a more business-friendly environment. However, the success of these initiatives will depend on their implementation and the government’s ability to balance economic growth with political considerations.
Healthcare Accessibility: Small Steps with Big Impact
The budget brings some relief to cancer patients by fully exempting three cancer drugs from custom duty. While this move may seem small in the grand scheme of things, it has a huge positive impact on cancer patients and their families. The deduction on family pension for pensioners has been raised from Rs 15,000 to Rs 25,000, a change that, though small, will be appreciated by many retirees (significant spend of theirs goes to healthcare).
These measures, while not headline-grabbing, demonstrate the government’s attention to specific healthcare and social welfare needs. Several initiatives focus on inclusive development, particularly in eastern states and for tribal communities. There’s also significant funding allocated for women’s and girls’ schemes. It seems the government is taking a “develop-mental” approach to social progress. However, some might wonder why announce these in the budget? Maybe to get some brownie points from the taxpayer; not to belittle the huge positive impact it has on cancer patients.
Building the Future: Capex Boost and Fiscal Management
The budget places a strong emphasis on infrastructure development and economic growth. The FY25 capex has been pegged at Rs 11.11 lakh crore, signaling the government’s commitment to infrastructure development. The fiscal deficit is projected at 4.9% of GDP in FY25, with plans to cut it further below 4.5% next year, indicating a focus on fiscal consolidation.
The budget also outlines nine priority areas, including manufacturing and services, in pursuit of Viksit Bharat. While these initiatives are crucial for long-term economic growth, some might argue that less slogans and more action, the better. The allocation of Rs 1.52 lakh crore for agriculture and allied sectors is a positive step for the rural economy.
Agricultural Initiatives
The government is prioritizing agricultural productivity and resilience through several programs. These include transforming agricultural research to focus on climate-resilient varieties, promoting natural farming practices, and supporting oilseed production. There’s also an emphasis on improving vegetable supply chains and cooperatives. A touch of humor: With all these farming initiatives, India might soon be known as the world’s most productive “agri-culture”!
Employment and Skilling
A series of schemes aim to boost employment, particularly for youth and in the manufacturing sector. These include wage support for new employees, incentives for employers, and programs to enhance job skills. One might quip that the government is really “employing” all its resources to tackle the job market! There was much noise during this elections about lack of jobs and jobless growth.
Manufacturing and MSMEs
Support for the manufacturing sector and MSMEs features prominently, with credit guarantees, enhanced loan limits, and industrial park developments. The focus on MSMEs is so strong, one might wonder if “Micro” is becoming India’s favorite size!
Digital and Financial Inclusion
Plans for digital public infrastructure and expanded banking services in rural areas suggest a push towards greater digital and financial inclusion. It appears India is banking on technology to bridge economic divides.
The financial support to certain states will raise eyebrows, with some questioning if this much is enough for the two states that are crucial for the political support for the central government!
Winners & Losers
So who could gain from this budget and who might lose out?
Winners
- Infrastructure: The budget proposes a hefty increase in capital expenditure for infrastructure projects, giving a golden opportunity to companies in construction, steel, cement, and related sectors to lay some serious groundwork.
- Manufacturing: With production-linked incentives (PLI schemes) and a focus on a self-reliant India, domestic manufacturing is set for a makeover. Time to make in India, not just for India!
- MSMEs (Micro, Small, and Medium Enterprises): Easier access to credit, a reduced tax burden, and support for e-commerce exports should make MSMEs feel like they’ve hit the jackpot.
- Information Technology (IT) and Telecom: With a budget focused on digitization and reduced customs duty on critical components, IT and telecom companies are in for a tech boost. Call it a digital delight.
- Renewable Energy: The budget’s increased focus on clean energy and customs duty exemptions on certain minerals mean renewable energy companies might just be on cloud nine.
- Youth: Policies include a one-month wage for all new job market entrants, skilling programs, and an apprenticeship program for young Indians. Looks like the youth are getting a head start. Earlier, in the Economic Survey released a couple of days before, there was much hand wringing on how the youth are wasting away their time on social media, and how AI may reduce the jobs available for them.
- Modi Allies: States like Andhra Pradesh and Bihar, governed by Modi’s BJP allies, received significant financial aid and infrastructure development pledges. Friends in high places, indeed.
- Startups: Abolishing the “angel tax” on funds raised by startups above fair market value is a major relief. Time to spread those entrepreneurial wings! This in my view will have a significant long term impact!
- Middle-Class: The standard deduction for income tax is increased from ₹50,000 to ₹75,000. More savings, more smiles. But social media is abuzz with negativity on the tax changes, as if indexation benefit on equities has just been removed etc.
- Jewelry: Lower customs duties on precious metals like gold and silver, with the duty for gold cut to 6%. Sparkle and shine, the gold is mine!
Potential Losers
With a rising economy it is difficult to pinpoint a loser. My view is that all stand to gain; nevertheless here is a jab at this.
- Short term Equity investors: The government has proposed to hike short-term capital gains tax from 15% to 20%, and double the security transaction tax on futures and options trading to 0.02%. Short term investors might not be feeling the love.
- Real Estate: The removal of indexation benefits for property sales could dampen real estate. This, coupled with the reduced capital gains tax rate, might make equities a more attractive option for some investors. The potential shift of funds from real estate to equity markets could dampen the sector, for a while at least. The government can apprehend the rise of black money and expect them to counter this. Demonetisation 2.0? May be, or may be not. Or a gradual reduction of high value notes!
- Electric Vehicles: No new policies were announced to boost the manufacturing of electric vehicles in India. Looks like EVs will have to wait a little longer for their moment in the sun. The government is anyway betting bigger on hydrogen which does not carry the deadweight of large batteries and the attendant issues of lithium mining etc.
Conclusion
In conclusion, the Union Budget 2024-25 presents a mixed bag of reforms, incentives, and fiscal measures aimed at steering India towards its vision of ‘Viksit Bharat’. While some changes may seem like mere tinkering – or as some might say, small crumbs for the small taxpayer – others signal potentially significant shifts in economic policy. From tweaks in personal taxation to boosts for startups and infrastructure, the budget attempts to balance growth aspirations with fiscal prudence.
This ambitious budget blueprint charts a comprehensive course for India’s economic and social development. From nurturing agricultural resilience to fostering job creation, supporting MSMEs, and promoting inclusive growth across regions, the initiatives span a wide spectrum of national priorities. The focus on digital infrastructure and financial inclusion demonstrates a forward-looking approach, aiming to leverage technology for broader economic participation.
While the sheer scope of these programs is impressive, their success will ultimately hinge on effective implementation and adaptability to ground realities. As with any budget, the devil is in the details and the true impact will only be felt in its implementation. Only time will tell if this budget will truly help India harvest a bumper crop of progress or if some plans might wither on the vine of bureaucracy.
