How The Financial Budget 2024 Affects your Investments : Capital Gains and Tax Changes Explained
The recent budget announcement has elicited mixed reactions from investors and analysts. Some view the changes positively, while others have expressed concerns.
A key aspect of Financial Budget 2024 is the revision in capital gains tax rates:
Short-Term Capital Gains: Increased from 15% to 20%
Long-Term Capital Gains: Increased from 10% to 12.5%
This blog will explore how the changes of Financial Budget 2024 impact investors and what they should consider moving forward.

Key Considerations for Investors in Financial Budget 2024
Each budget brings new policy adjustments that affect various aspects of the financial landscape. For investors, there are a few critical issues to consider:
Increase in Taxes: Recent budgets often involve changes to tax rates, which can impact overall investment returns.
Impact on Individuals vs. Capital Markets: It’s important to determine whether these tax increases affect individual investors more significantly or have broader implications for the capital markets.
In addition to the impact of tax increases on investors, it’s crucial to evaluate the broader economic implications:
Economic Impact: Assess whether the budget’s changes might lead to broader economic issues. Understanding the overall economic environment is essential for gauging how these changes might affect economic stability and growth.
Profitability Concerns: Even with increased taxes, it’s essential to determine if the economic conditions resulting from the financial budget 2024 could affect profit potential.
Focus Areas of the Financial Budget 2024
Infrastructure Development
The budget significantly emphasizes boosting infrastructure, which is expected to drive economic growth and open new investment opportunities.
Consumption
Consumption drives 65% of India’s GDP. To sustain economic growth, it is crucial to enhance consumption. This budget prioritizes measures that support rural economies, create employment, and invest in infrastructure.
Investment Opportunities
The focus on infrastructure and consumption indicates a strong potential for future profitability. With these priorities, there is an increased likelihood of investment returns, making the capital market a promising area for investment.
Income Tax Changes on Transactions in Financial Budget 2024
Regarding income tax changes, there has been minimal leniency in specific areas.
For example, the budget includes a modest increase in the standard deduction for employees to ₹20,000, which may not significantly impact most investors.
However, there have been notable adjustments in capital gains exemptions. The exemption limit has been increased from ₹1,00,000 to ₹1,25,000.
While these changes are incremental, they could still influence tax liabilities and investment strategies.
Impact of Budget on Capital Markets
Increased Transaction Costs:
The security transaction tax has doubled for those engaged in speculation or trading, raising costs associated with trading activities. This could impact the profitability of frequent traders.
Derivatives and Speculative Transactions:
There has been a rise in rates for derivatives and speculative transactions. This increase may affect those involved in high-risk trading or mobile trading platforms.
Changes in Capital Gains Tax Rates
Long-Term Capital Gains: The tax rate on long-term capital gains has increased from 10% to 12.5%. This represents a 25% increase in the tax rate.
However, the exemption limit for long-term capital gains has also been raised from ₹1,00,000 to ₹1,25,000, which could help offset the higher rate.
Example: Consider an investment of ₹20,00,000 with a profit of 20%, resulting in a gain of ₹4,00,000.
- New Exemption Limit: ₹1,25,000
- Taxable Amount: ₹4,00,000 – ₹1,25,000 = ₹2,75,000
- Tax Rate: 12.5% on ₹2,75,000
Tax Calculation:
- Previously, At a 10% tax rate, the tax on ₹2,75,000 would have been ₹27,500.
- Now: At a 12.5% tax rate, the tax is ₹34,375, increasing to ₹6,875.
Even with the increased tax, the impact is relatively modest. This adjustment does not lead to a significant loss for moderate investors, and the long-term profitability from long-term investments remains positive.
Short-Term Capital Gains: The tax rate on short-term capital gains has increased from 15% to 20%. Here’s how it impacts a typical scenario:
Example: With short-term capital gains of ₹4,00,000:
- Previously, At a 15% tax rate, the tax would have been ₹60,000.
- Now: At a 20% tax rate, the tax amounts to ₹80,000.
This results in an increase of ₹20,000 in tax liability. Although this is a significant rise, it represents only 1% of a ₹20,00,000 investment.
Impact on Investments:
While notable, the increase in short-term capital gains tax is relatively minor in the context of overall investment.
The market has largely absorbed these changes, and most investors have no substantial profit or loss impact. This suggests that while the tax increase is noteworthy, it should not cause undue concern for investors.
The market has adapted, and the overall investment environment remains stable.
Conclusion:
The budget has also adjusted the standard deduction, increasing it from ₹50,000 to ₹75,000. Salaried employees have no tax on income up to ₹3,00,000, with income between ₹3,00,000 and ₹7,00,000 taxed at a rate of 5%.
In practical terms, this means that the tax burden for many is minimal. The enhanced disposable income from these adjustments will likely be reinvested in the market through discretionary spending.
The budget’s focus on supporting the service sector, job creation, and skills development further supports economic growth.
In summary, while there are increases in capital gains taxes, the overall impact is mitigated by higher exemptions and lower tax rates for lower-income brackets. The emphasis on infrastructure and economic growth suggests a stable outlook for the capital markets and broader economic stability.
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