In a massive blow to stock market, Finance Minister Nirmala Sitharaman, in her budget speech, proposed to hike short term and long term capital gains taxes. The FM has proposed to increase short term capital gains tax to 20% from current level of 15%, while long-term capital gains (LTCG) tax raised to 12.25% from 10% currently. In a slight respite to long term investors, long term capital gain exemption has been raised from ₹1 lakh to ₹1.25 lakh.
Reacting to the news, the BSE Sensex nosedived as much as 660 points, or 0.82%, to slip below crucial level of 80,000 to 79,677. In a similar trend, NSE Nifty plunged 215 points, 0.88%, to 24,294 marks. The broader market was the worst hit, with BSE midcap and smallcap indices crashing up to 3%.
“The 2024 budget presents a mix of expected and surprising measures. While capital expenditure and the fiscal deficit target remain steady, significant changes to tax policies, particularly the increases in LTCG, STCG, and STT, are likely to impact market sentiment,” says Santosh Meena, Head of Research, Swastika Investmart Ltd.
“We should closely monitor the Nifty's key support level at 24,150. If Nifty manages to hold above this level despite the budget's negative implications, it could resume its bullish momentum and target the 25,000 level. Conversely, if Nifty falls below 24,150, it may decline further towards the 23,640 level,” he adds.
Ahead of budget announcement, market experts have warned that any tweak in capital gains tax could spoil mood at Dalal Street. “Any deviation from market expectations could attract some negative reaction in the short term. However, the chances of this occurring appear slim,” Axis Securities had said in a note.
Echoing the same, Sunil Nyati of Swastika Investmart had said that investment sentiment is currently very strong, and it is crucial for the government to avoid decisions, such as hiking long-term capital gains (LTCG) or securities Transaction Tax (STT), that could disturb the market mood.
The STT is a tax imposed on the buying and selling of equity shares, equity-oriented mutual funds, and derivatives (futures and options) traded on stock exchanges in India. Currently, 0.1% of STT is levied on both the buy and sell side. For sale and buy of an option and future in securities, 0.125% of the intrinsic value is applied.
On the other hand, LTCG is a tax applied on profits on the sale of shares or equity-oriented mutual funds held for more than a year. As of now, LTCG is taxed at a 10% rate (plus surcharge and cess) if they reach ₹1 lakh in a fiscal year.
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