The much-awaited Union Budget of NDA Government 3.0 was presented by Finance Minister Mrs. Nirmala Sitharaman on 23rd July 2024 in Indian Parliament. While how this budget was good or bad on various accounts, from political to social to economical, welfare schemes to taxation, etc. We will only focus on the stock market-related impact of this budget in this blog.
The Union Budget FY25 gives us the increased Long Term Capital Gain Tax (LTCG) to 12.5% from 10% with a net profit limit extending from ₹100000 to ₹150000 and Short-Term Capital Gain Tax (STCG) to 20% from 15% with an increase of 5%, and also with buy-backs are now taxed with an increase in the Securities Transaction Tax for Derivate traders.
Now the strong discussion among the investor’s community with increased tax on the investments might discourage retail investors from investing in stock markets.
From yesterday’s onwards, all the social media were full of such discussion about how the increased tax burden might impact investing and how the government wants people to stay away from investing in stock markets. While some advocate the bank fixed deposit as the safest and only option remaining with retail investors. Now we have to be very practical in removing the outer noise that can derail your investment goals. The first step is to completely avoid negative thought processes, which can impact your investment journey.
Equity Investment in India saw greater participation among retail investors post-covid, with demat account number counts at 16.2 crore as of June 2024 and estimated to be rising in the coming years. The greater awareness among the middle class on the stock market has changed over the year, with the younger earning population no longer thinking of going for conventional saving and investment through bank FDs.
The most important point is that among the stock market industry participants, they were anticipating an increase in the LTCG and STCG from a few years ever since its inception in Budget 2018.
What I found was that increasing tax to avoid equity investment will be a disaster for one’s investment goal as the other opportunities of investment compared to equity investment are much less, and understanding this reality has given a record 16.2 crore demat account, near about 12% of the Indian population invests in the stock market.
Here is the most interesting data from the government: only 2.24 crore people have filled tax in FY22-23, which makes only 1.6% of total India, and 16.2 crore demat accounts clearly suggest the actual impact for the majority of investors in the form of increased LTCG and STCG is below 1% subjected to a ₹125,000 limit for LTCG and a ₹ 100,000 limit for STCG.
The majority of retail investors can be up to 99% don’t fall in category of booking profit over ₹ 100,000 both in long-term and short-term for equity investment, and with less than 1% actual investors who are impacted by the increased LTCG and STCG can be well-adjusted anticipating that now more increased in LTCG and STCG till NDA 3.0 Government remains in Power. This is the reason the stock market recovered faster than anticipated in yesterday’s trading session only.
Conclusion: Retail investors should completely ignore the noise and negative thoughts to avoid equity investments due to increased LTCG and STCG and should more focus on their financial goals with the help of a certified financial advisor.
