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Impact of Budget on Stock Market

Jul 24, 2024

By: BlinkX Research Team

The domestic benchmark indices, the Sensex and the Nifty 50, fell over 2% apiece after Union Finance Minister Nirmala Sitharaman recommended raising taxes on market gains in her Budget 2024 address, defying expectations that the government would keep them untouched.
 

The Sensex lost about 1.6% and the Nifty 50 dropped 1.8% in the intraday session after Sitharaman recommended raising market gain taxes.
 

There are two major reasons why the Indian stock market plunged today:
 

1. FM Doubles STT

Sitharaman said that the Security Transactions Tax (STT) rates will be raised to 0.02% and 0.1%, respectively, in an apparent effort to curb widespread F&O trading. As a result of this budget plan, equities and index traders will have to pay twice as much tax on their trades. 
 

“It is proposed to increase the rates of STT on the sale of an option in securities from 0.0625 per cent to 0.1 per cent of the option premium, and on sale of a futures in securities from 0.0125 percent to 0.02 per cent of the price at which such futures are traded,” the FM said in her Budget speech.
 

2. LTCG, STCG Tax Rates Increased

The FM declared that long-term capital gains (LTCG) on all financial and non-financial assets will be taxed at 12.5%, up from 10% before. She also revealed that short-term profits on certain financial assets will now be taxed at 20%, up from 15% before. 
 

"Short term gains on certain financial assets shall henceforth attract a tax rate of 20 per cent, while that on all other financial assets and all non-financial assets shall continue to attract the applicable tax rate," the FM said.
 

"Long term gains on all financial and non-financial assets, on the other hand, will attract a tax rate of 12.5 per cent. For the benefit of the lower and middle-income classes, I propose to increase the limit of exemption of capital gains on certain financial assets to ₹1.25 lakh per year," said the FM.
 

The market reacted quickly to the increase in the LTCG tax rate. However, it eventually reduced its losses. Around 1:10 p.m., the Sensex and Nifty 50 were only 0.5 percent down.
 

"For the year 2024-25, the total receipts other than borrowings and the total expenditure are estimated at ₹32.07 lakh crore and ₹48.21 lakh crore, respectively. The net tax receipts are estimated at ₹25.83 lakh crore. The fiscal deficit is estimated at 4.9% of GDP," said the FM. 
 

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