BAJAJ BROKING
July 15, 2024
7 mins read
If you have been following the Union Budget over the last few years, you are likely to have an idea what people are expecting from this year’s announcement. The primary discussion is likely to be a blend of numbers, policies, and economic strategies mixed up together.
We have got taxes to talk about, and there are some things to look forward to with regards to infrastructure development. Let’s start with one of the most sought-after areas of interest - the capital gains system.
Tax on capital gains is essentially tax on the profit you make from selling a capital asset. Imagine you sold a spare apartment you had outside the city, and made some gains from that sale, the government would want a piece of that cake.
We have two types of capital gains, short-term and long-term. Short term is usually considered as less than 36 months, with some exceptions. For unlisted shares and securities, and immovable property, 24 months is the ceiling. For listed shares and securities, the holding period is 12 months. If you hold an asset for more than the holding period, it is a long-term asset for you.
While any capital gain is taxed, most short-term capital gains (STCG) are taxed at regular income tax rates. However, most long-term capital gains (LTCG) are taxed at a flat rate of 20 percent. This 20 percent is charged, of course, after indexation, which is a process that converts the numbers to reflect the inflation of money over the years that you have held the asset for. This is so that the cost price of the asset is not understated, and this is good for you as a taxpayer.
Gains arising from transfer of securities are handled specially, and this is based on whether they are listed or not, and whether Securities Transaction Tax is applicable or not. For STCG from transfer of securities where STT is applicable, the gains are taxed at regular income tax rates. For cases where STT is not applicable, the gains are taxed at 15 percent.
For LTCG, in cases where STT is applicable, the tax rate is 10 percent, without indexation benefit, for gains of over ₹1 lakh. This limit was introduced in the Finance Act, 2018. In cases where STT is not applicable, the gains are taxed at 20 percent, with the benefit of indexation.
Before we move into Budget 2024 expectations related to capital gains tax provisions, let’s explore the global capital gain taxing systems for a comparison.
Reports have it that the Union Budget for 2024 would be presented by Finance Minister Nirmala Sitharaman on 23rd July. This Budget is likely to come up with policies, schemes, income tax rate slabs, and more—some inbuilt announcements that will greatly influence our lives.
To simplify this year’s budget and decode its impact on your life, investment portfolio, and everything in between, Bajaj Broking brings you #BudgetSimpleHai!
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To get some clarity on these rates and whether they make sense, let’s take a look at what other countries charge their people on their capital gains. In the United States, capital gains (long-term) are taxed at three slabs - 0 percent, 15 percent, or 20 percent. The slab is fixed based on the income level of the taxpayer. In the United Kingdom, the rate is either 10 percent or 20 percent, and again this is decided based on the income level.
In Australia, long-term capital gains are taxed at regular income tax rates, however, there is a twist. They only tax 50 percent of your long-term capital gains. And then there are France and Denmark, the party poopers. France charges up to 30 percent on capital gains while Denmark charges 42 percent on gains (exceeding 61,000 Danish Krones) from transfer of securities. Yes, you read that right. Looks like the Danish government doesn’t like people selling their shares.
So yeah, in comparison India’s tax rates are not the harshest. Now, let’s move on to the budget expectations in Capital Gains.
The changes expected in the taxation of capital gains mostly have something to do with bringing some uniformity in how listed and unlisted shares and securities are handled. Firstly, the holding period for unlisted securities is likely to be reduced to 12 months from 24 months, bringing them on par with listed securities.
In terms of tax rates as well potential changes are foreseen. The long-term gains from transfer of listed and unlisted securities are expected to be taxed similarly irrespective and this is supposed to be similar for both residents and non-residents. Currently the treatment differs based on residential status.
Thirdly, the limit of ₹1 lakh up to which the long-term gains on transfer of securities are not taxed, is also anticipated to be raised, considering how it has not changed since 2018, when it was introduced.
Now, let’s move on to some other budget 2024 expectations.
Imagine how it would feel when your favourite show had ended, but then they announced another surprise season? That is what retrospective GST notices feel like, but these surprises aren’t as pleasant. One day, the government just decides you owe them taxes from years ago. And you have to pay them. GST remissions are a significant part of our government’s tax revenue.
Well, the proposed Finance Bill wants to change that. Provisions relating to retracting of these retrospective notices are likely to find a place in Finance Bill 2024. This will be a sigh of relief for the business fraternity, who would not be worried about raids of tax demand from the past. This definitely is a star feature of budget 2024 expectations.
Section 80C in India has evolved into the Swiss Army knife (the one with million kinds of blades for several purposes) of tax deductions, covering life insurance premiums, tuition fees, and a raft of other investments and expenses, all of which help you save up to ₹1.5 lakh in taxes. But the catch here is the concept of lock-in periods.
At present, investments such as an ELSS - an Equity Linked Savings Scheme - are required to be locked-in for a period of three years. Others, like the Public Provident Fund or PPF, have a 15-year term. How these lock-in periods are reduced for the upcoming budget will tinker and attract more flexibility to an investor. Think of it as the government giving you more freedom to do what you want with your money, which is always a welcome revision in rules.
With interest rates on the rise, EMIs have become burdensome, especially for home loan consumers. They are looking forward to this budget hoping for something to smile about. The deduction limit under Section 24(b) could be what they are looking for.
The section talks about home loan interest and currently there is a limit of ₹2 lakh up to which interest paid on home loan can be deducted from taxable income. This limit is likely to go up. This will make things easy for the homeowners to a great extent.
This year’s budget expectations offer some interesting changes to look forward to. Well, potential changes to be precise, we don’t know how many of these predictions would actually come true. Budget trackers can only make educated guesses. As for areas of change, from adjusting capital gains tax to more worthy provisions for senior citizens, there is much that is highly awaited in this regime.
Pretty straightforward, wasn’t it? Stay connected with Bajaj Broking for all the latest Union Budget updates. Kyunki Bajaj Broking ke saath, #BudgetSimpleHai
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Budget 2024 expectations include minor tweaks to tax slabs and rates, with an aim to offer relief to the middle-class population. Increased exemption limits and deductions are expected.
This year’s budget is forecasted to bring in some infrastructural developments in the railways and highways especially. This would result in increased jobs and improved transportation for businesses to thrive.
Yes, the budget might bring in new initiatives to enhance healthcare infrastructure. This would probably in the form of higher insurance coverage, and more affordable healthcare.
Key areas like infrastructure, healthcare, education, and renewable energy are topping the list of sectors that could receive significant funding for growth and development.
Budget expectations this year include more funding for green projects, and incentives to businesses that promote use of renewable energy. Furthermore, we expect policies that can reduce carbon emissions and promote sustainable practices.
The budget could increase investment on education to improve the infrastructure, technology integration, and quality of education in our country.
Research and development might benefit from added funding, and there could be incentives for startups as well. Policies promoting digital transformation and technological innovation are likely to form part of this year’s budget.
Yes, likely improvements can be seen in social welfare programs, which will lead to better retirement pensions, improved medical care, and support for the more vulnerable sections of the population.
Whatever tax-relief measures may come into effect such as increased limits on exemptions and deductions, will likely increase the average taxpayer's disposable income, allowing more flexibility with finances.
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