As the Union Budget 2025 draws near, expectations are high at Dalal Street. A tinkering with long-term capital gains tax, increasing the prevailing exemption limit of Rs 1.25 lakh is on investor radar. Abolition of securities transaction tax (STT), though looks optimistic, is also among key expectations. Besides, changes to Sections 54F, relating reinvestment of capital gains, potentially expanding its eligibility and increasing the ceiling for investment is also on the wish list.
While it may look optimistic, a reduction or moderation in capital gains tax or Securities Transaction Tax (STT) could significantly improve market dynamics, said Shripal Shah, MD & CEO, Kotak Securities.
"Such steps would not only support domestic retail participation but also make Indian equities more attractive to foreign investors. This could help counteract FII outflows, stabilise the rupee, and enhance the overall investment climate. A budget addressing these areas would be a welcome boost for the broking industry and retail investors alike,” Shah said.
As far as the capital gains tax is concerned, Dhruv Chopra, Managing Partner at Dewan PN Chopra said a key expectation is that the exemption limit for long-term capital gains on equities, currently capped at Rs 1.25 lakh, may be increased to Rs 2 lakh or higher, allowing small investors to retain more of their returns.
Chopra said that there is growing anticipation for a review of Sections 54 and 54F, which provide exemptions for reinvestment of capital gains in residential properties, potentially expanding eligibility and increasing the ceiling for investment.
Section 54F of the Income Tax Act 1961 offers exemption from long-term capital gains on equities if the sale proceeds are reinvested in a new residential property within a specified timeframe.
"The restriction on investing the sale proceeds in acquiring two residential houses should be removed and the scope should be broadened to exempt capital gains tax if the sale proceeds are invested in creating housing stock, without any limitation on the number of units for individuals and HUF. Additionally, for claiming deductions under Section 54, the minimum holding period of the new asset should be reduced from 3 years to 2 years, in line with the minimum period for an asset to be treated as a long-term capital asset under Section 2(42A)," Chopra said.
In its Budget 2024, the government had hiked short-term capital gains (STCG) tax to 20 per cent from 15 per cent to curb speculation. Similarly, the rise in Securities Transaction Tax (STT) for options and futures slightly raised transaction expenses and marginally impacted trading volumes.
Since the LTCG tax on securities is now at par with other assets, the Securities Transaction Tax (STT) should be abolished, said Niranjan Govindekar, Partner, Corporate Tax, Tax & Regulatory Services, BDO India. "Budget 2024 unexpectedly removed the indexation benefit for all long-term investments in debt funds. It is expected that all investments in debt funds made up to 31 March 2023, would qualify for the indexation benefit as per earlier provisions. The government should amend the law on tax implications on the buyback of shares to allow the cost of the acquisition of shares as a reduction and tax only the net amount as a dividend," he Govindekar said.
"We do not anticipate any immediate changes or relief, but rather expect that measures will be implemented to regulate small traders with low incomes. This may focus on ensuring greater oversight and control, which may limit the participation of lower-income investors in F&O trading. Such regulations may be aimed at reducing risk exposure for these traders while maintaining market stability," said Trivesh D said.