'Investment in markets has become a revenue stream for govt': Experts on hike in capital gains taxes in Budget 2024

Union Budget 2024: After Union Finance Minister Nirmala Sitharaman made significant changes in the capital gains tax regime, prominent market experts at the Business Today Budget Roundtable shared their views on the tax impact on the stock market.

There was a sudden dip in the market after the announcement on July 23. Following the announcement, the 30-share Sensex index experienced a notable decline of over 1,000 points, briefly dipping below the significant 80,000 mark. However, by the end of the trading day, both the Sensex and Nifty indices managed to recover a substantial portion of the losses incurred earlier.

The BSE benchmark, Sensex, concluded the session at 80,429.04 points, whereas the 50-share Nifty index wrapped up the day at 24,479.05 points. However,  Sensex and Nifty successfully recovered from their losses and are currently trading at levels higher than those seen before the Budget.

Experts in India Today-Business Today Budget Round Table 2024 opined that the decision's impact may not be as significant as others have warned. They emphasized that the potential ramifications on investor behavior and market stability might not be as severe as initially suggested.

Talking about the tax hike, Vijay Kedia, MD, Kedia Securities, said that he was expecting more from the government and as LTCG is concerned, it is a very reasonable hike and the market will ultimately like it. "It is okay. 12.5% is okay because I was expecting 20% and it is only 12.5%. As I said, hardly 1% people hold shares for one year and beyond. I would say bach gaye," Kedia told the expert panel on Saturday.

It is to be noted that the finance minister this Budget hiked short-term capital gains tax rate from 15% to 20% and the long-term rate from 10% to 12.5%. Besides, she also proposed to increase the initial long-term capital gains from Rs 1 lakh to Rs 1.25 lakh on which no tax is payable.

Talking about the capital gains tax regime and tweaks introduced by the government, Dhirendra Kumar, Founder and Chief Executive, Value Research, said: "This government prefers money moving from banks to market-linked investments. When you earn interest that is taxable income. When you earn appreciation by investing in markets, by way of capital gains, till four years back, it was not taxable. As the scale grows, the government is looking at it as a revenue stream and it has become a meaningful medium for this. However, there is one thing here. Your long-term orientation, all the market-linked investments, nobody can tax you on appreciation you haven't realised. You will be liable for tax only if you realise some gains, so it is a tax deferral vehicle."

He added: "We dislike all taxes, personally I dislike capital gains taxes because principally if you recall the Kelkar committee report -- capital gains tax is reflection of the corporate earnings, which have not been realised."

When asked whether the government will increase the taxes on stock markets next year, Ashu Madan, co-head business affiliate group and MD, JM Financial Services, said: "The Capital gains tax has become the buzzword post the Budget. There are two aspects to this. As a salaried person, I am not happy about the tax levy. But if you see as in terms of markets, you will find there is nothing wrong. Capital markets are reflection of how good or bad the companies are doing. The investment in stock had nothing do with the capital gains tax or STT levied this Budget. I feel if we are making decent profit in the market, LTCG new rate will not make much of a difference."

Earlier, many experts have also spoken against the new capital gains tax revision. Samir Arora, founder and fund manager of Helios Capital, said: "India has performed well on a pre-tax basis compared to other countries. However, the tax changes are likely to lead to a permanent reduction in post-tax returns." He noted that while India has performed well relative to other markets in recent years, the tax increase could diminish future post-tax returns. "I'm saying big picture, let us make India at least tax-neutral. Then everything else is in our favour and we are the biggest beneficiaries if the market does well."