Budget 2024: The government has attempted to siphon off a portion of the expansion and investor gains from the capital market at a time when equities indices are setting records. It has implemented a tax system that imposes a double whammy by raising the rates of short-term capital gains (STCG) and long-term capital gains tax (LTCG) as well as the securities transaction tax (STT) on derivatives.
In her Budget 2024 announcement, Finance Minister Nirmala Sitharaman stated that the long-term capital gains tax (LTCG) on all financial assets—including equity—will increase to 12.5% from the current rate of 10%. The tax on short-term capital gains (STCG) was increased from 15% to 20%.
Additionally, Sitharaman announced a rise in STT from 0.01% to 0.02% for F&O (Futures & Options) transactions.
Market analyst Shankar Sharma was taken aback by this decision. After the Union Budget 2024 presentation, the founder of GQuant Investech, in an exclusive interview with Business Today TV, expressed his dismay that the government would take this action, considering that the results of the general election fell somewhat short of predictions.
Sharma said that hejust finished wiping his tears after the huge increases in capital gain taxes, both short- and long-term.
Further, Sharma went on to say that although he had hoped they wouldn't, they had already taken this action. The fact that they haven't done anything similar since 2018, during the demonetisation phase, is what truly disappoints him.
"LTCG was brought back to life from being non-existent for several years (from 2007). 11 years later LTCG came back and STT (Security Transaction Tax) didn't go out. So we had two unwelcome guests," Shankar Sharma said in an interview with Business Today TV.
He stated that the market looks for a cause to correct at high levels when asked for his opinion on the future course.
"With this hike in taxes, we've given a domestic homegrown reason on a platter. I hope it doesn't take it too seriously but I fear it might," Sharma said in an interview with Business Today TV.
Similarly, market analysts pointed out that the rise in the STCG to 20% and the LTCG to 12.5% is a major blow to the market. In the near run, investors should prepare for a negative reaction.The fact that the STT on F&O has increased five times, from 0.02% to 0.1%, is not surprising given all the concerns expressed over the too strong interest in the market.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
