Union Budget 2024: Key Highlights and Their Implications

This year’s budget is packed with strategic provisions aimed at boosting the agricultural sector, introducing innovative employment schemes, and providing robust financial support for MSMEs. As we navigate through the intricacies of this budget, we'll uncover its impact on investors and traders and explore how to adapt to these evolving financial market.

Key Highlights from Budget 2024-25

The Union Budget 2024 spearheads huge investments in job creation through employment, education and agriculture. Over the next five years, a ₹2 lakh crore initiative will create 4.1 crore job opportunities. Additionally, there is an allocation of  ₹1.48 lakh crore to improve education and skill development. The agriculture sector is getting  ₹1.52 lakh crore meant for high-yielding climate-resilient crops and natural farming with initiatives to enhance pulse-oilseed self-sufficiency.

Social justice coupled with infrastructural development are also priority areas with rural development being allocated ₹2.66 lakh crores along with such projects like Pradhan Mantri Janjatiya Unnat Gram Abhiyan targeting tribal communities. Notable reforms include increased support for MSMEs, a higher Mudra loan cap, and expanded internship opportunities for youth.

Urban development is accelerated through investments in housing, sanitation, and energy security. The budget also introduced tax relief measures, including higher standard deductions, the removal of the angel tax, and reduced customs duties on essential goods, all aimed at simplifying tax compliance and encouraging investment.

Charting the 2024 Union Budget: Implications for Investors and Traders

The Union Budget 2024 includes a number of substantial tax adjustments that will change the investment arena. Changes to capital gains tax, Securities Transaction Tax (STT) rates, and the taxation of share buybacks are expected to affect both investors and traders. Adapting to these changes will be critical for investors.

Taxation of Share Buybacks

Previously, shareholders received tax-free buyback proceeds, while firms paid a tax rate of 20% on the amount. This system indirectly impacted shareholders by raising the overall cost of buybacks. The new budget proposes a change: beginning October 1, 2024, firms will no longer be taxed on buybacks. Instead, the proceeds from the buyback will be considered as a dividend and taxed at the respective slab rates of the shareholder.

This change means that shareholders will now face direct tax implications for buyback proceeds. Notably, no deductions for the cost of acquiring shares will be allowed against the buyback price. Although shareholders can claim a capital loss on share extinguishment, this may not entirely balance the increased tax burden, potentially resulting in fewer buybacks as corporations and shareholders adjust to the new regime.

Capital Gains Tax Adjustments

Changes in capital gains tax rates will have a direct impact on investors in listed equities and equity mutual funds. The long-term capital gains tax rate will be raised from 10% to 12.5%, while the short-term capital gains tax rate will climb from 15% to 20%. The exemption limit for long-term capital gains on these assets would be increased from ₹1 lakh to ₹1.25 lakh. These revisions, which take effect on July 23, 2024, will influence both new and existing investments, forcing investors to reconsider their portfolio plans.

Increased STT Rates on Futures and Options

The budget also included a significant increase in STT rates for futures and options (F&O). The STT on options will increase from 0.0625% to 0.1% of the option premium, while the STT on futures contracts will increase from 0.0125% to 0.02% of the transacted price. Traders will need to incorporate these higher costs into their trading techniques and decisions. 

This adjustment aims to deter retail investors from participating in risky market segments, following concerns raised by SEBI and RBI prior to the budget. By increasing tax revenue and discouraging retail F&O trading, the government hopes to promote a more stable market environment. Consequently, traders will need to adapt their approaches to account for these elevated costs.

Other Notable Budget Changes

The budget aims to simplify the tax deduction structure by removing the 20% TDS on the repurchase of mutual fund units. Further, abolishing the Angel Tax will benefit investors in startups by getting rid of the tax on funds collected beyond the fair market value of shares issued by unlisted firms.

As investors and traders adapt to these shifts, StockGro becomes a useful tool for modifying investment strategies. Ajay Lakhotia, founder of StockGro, provides valuable guidance on investment management in this changing environment.

"Greed is good, but risk management is what saves the day for an investor to come back to the arena another day and stay invested in the growth of the country."

The 2024 Union Budget comprises important tax changes that will impact various aspects of investing and trading. The adjustments in taxes on share repurchases, higher STT rates, and capital gains tax rates require a reassessment of investment plans. StockGro offers beneficial services like advisor confirmation, monitoring of performance, managing risks, and providing market data. By utilising these resources, investors can successfully navigate the new tax environment while maintaining their financial objectives.

Disclaimer: This article has been produced on behalf of the brand by HT Brand Studio. The content is for information purposes only and does not constitute financial advice.