Differing Opinions on Tax Reforms and Their Impact on Investments

Analysis of Union Budget 2024: Impact of Tax Changes on Various Segments of the Public

The Union Budget 2024, presented by Finance Minister Nirmala Sitharaman, has introduced significant changes in taxes that will impact various segments of the public. The overhaul of capital gains tax means short-term gains on financial assets will be uniformly taxed at 20%, affecting traders who rely on quick turnovers.

Long-term capital gains tax has been reduced to 12.5%, which is favorable for long-term investors and offers an annual exemption of ₹1.25 lakh on profits, benefiting smaller investors. However, the removal of indexation for property, gold, and unlisted shares will increase tax liabilities, possibly deterring investments in these assets.

Furthermore, the reduction of the holding period for bonds, debentures, and gold from 36 to 24 months will make these investments more appealing. The increase in the standard deduction from ₹50,000 to ₹75,000 will provide relief to salaried individuals, boosting their disposable income. Enhanced family pension deductions and the abolition of angel tax will support pensioners and start-ups respectively.

On the other hand, the increase in Securities Transaction Tax (STT) on futures and options to 0.2% might reduce trading volumes. Treating buybacks as dividends simplifies the tax process, potentially reducing tax evasion. These reforms aim to balance simplification and growth, fostering a stable and investor-friendly environment.

Chartered Accountant Manoj Jajoo from M Jajoo & Co. commented on the budget, stating that it meets the government’s commitment to making a more inclusive and employment-focused Viksit Bharat. The proposed review of the Income-tax Act and rationalization of the TDS regime are welcome measures.

The removal of indexation for computing gains and the shifting of buyback tax to individuals may have mixed impacts. The removal of Angel Tax creates a more conducive climate for start-ups to raise funds, while the reduction in income-tax rates for foreign companies aims to increase FDI inflows in India.

Overall, the budget has been well-received from a taxation perspective, with experts like Riaz Thingna, a Chartered Accountant and Partner at Grant Thornton, describing it as very exciting. The reforms aim to create a more investor-friendly environment while also supporting various sectors of the economy.