Budget 2024: Simplified Guide to Key Changes and What They Mean for Investors and Traders

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The Union Budget 2024, presented by Finance Minister Nirmala Sitharaman, introduces significant changes and sets nine priority areas that will drive economic growth and development. These priorities encompass agricultural transformation, employment and skilling, human justice, regional development, manufacturing and services, urban development, energy security, infrastructure, innovation and research and development, and next-generation reforms. This blog will explore these priorities, key tax changes, and their impact on investors, traders, and the overall stock market.


Nine Priorities for the Union Government



The budget outlines the following nine priority areas for the union government this year:

  1. Agricultural Transformation
  2. Employment and Skilling
  3. Human Justice
  4. Regional Development
  5. Manufacturing and Services
  6. Urban Development
  7. Energy Security
  8. Infrastructure
  9. Innovation and Research and Development


These priorities aim to address broad economic goals and provide investment opportunities across various sectors. Investors should closely monitor developments in these areas for potential benefits.


Tax Changes: Larger Numbers and Their Impact



Standard Deduction Increase


One significant change is the increase in the standard deduction for the new tax regime from 50,000 rupees to 75,000 rupees. This increase will effectively reduce taxable income by an additional 25,000 rupees, saving taxpayers approximately 8,000 to 10,000 rupees in taxes, assuming a 30% tax rate.


Revised Tax Slabs


Adjustments to the tax slabs include:

  • The 5% tax slab now applies to incomes from 3 to 7 lakhs, up from 3 to 6 lakhs.
  • The 15% tax slab now covers incomes from 10 to 12 lakhs, up from 9 to 12 lakhs.


Combined with the increased standard deduction, these changes could save salaried taxpayers an additional 17,500 rupees per year.


Capital Expenditure and Fiscal Deficit


The allocation for capital expenditure remains at 11.11 lakh crore rupees, unchanged from the February 2024 budget. However, the fiscal deficit target for FY 25 has been revised to 4.9% of GDP, down from 5.1%. To achieve this, the government will need to boost revenue, likely through higher taxes, as expenses are not being reduced.


Impact on Investors



Long-Term Capital Gains (LTCG) Tax


The LTCG tax rate has increased from 10% to 12.5%, and the exemption threshold has been raised from 1 lakh to 1.25 lakh rupees per year. For example, a 5 lakh rupee profit from investments held for over a year will now incur taxes of 46,875 rupees, up from the previous 40,000 rupees. This increase could deter long-term investments by reducing net returns.


Short-Term Capital Gains (STCG) Tax


The STCG tax rate on equity and equity mutual funds will rise from 15% to 20%. For a 1 lakh rupee profit, this means taxes will increase from 15,000 to 20,000 rupees. This change aims to reduce market speculation and encourage longer-term holdings.


Impact on Traders


Securities Transaction Tax (STT)


STT changes include:

  • STT on Options: Rate increased from 0.062% to 0.1%.
  • STT on Futures: Rate increased from 0.0125% to 0.02%.


These changes, effective from October 1st, will result in higher transaction costs for traders, potentially reducing trading volumes and speculative activities.


Controlling F&O Trading



The government is introducing measures to control the rise in futures and options (F&O) trading. A flat 30% tax rate for F&O income was considered, alongside the elimination of treating F&O as business income, disallowing deductions, and carrying forward losses. Though these measures were not implemented, the increased STT will significantly impact traders. For instance, if you currently pay 10,000 rupees in STT, this could rise to nearly 20,000 rupees under the new rates. According to Nitin Kamath of Zerodha, this could increase STT collection from 1,500 crores to up to 2,500 crores, assuming trading volumes remain constant.




Conclusion


The Budget 2024 introduces several changes aimed at increasing government revenue and managing fiscal deficits while prioritizing key sectors for economic growth. Investors and traders must adapt to higher tax rates on long-term and short-term gains and increased transaction costs. The detailed impacts on various sectors and potential investment opportunities will be explored in further articles, providing a comprehensive guide to navigating the new financial landscape shaped by this budget.



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