Key Highlights from the Union Budget 2024-25 : Finance Minister Nirmala Sitaraman Shakes the Financial Markets

The Union Budget has been announced, and it has already caused significant reactions. The stock market dropped sharply following Finance Minister Nirmala Sitharaman’s announcement of increased taxation on securities like Futures and Options, prompting traders to exit large positions. Numerous major and minor changes were introduced, with various sectors and states receiving special funds for climate relief and policies aimed at improving current conditions. Stay with us as we delve into every detail of the budget in this blog –

Increased Securities Transaction Tax on Futures and Options

One of the notable changes in the 2024 budget is the increase in the Securities Transaction Tax (STT) on futures and options contracts. The STT on futures contracts has been raised to 0.2%, and for options, it is set at 0.1%. This adjustment is aimed at generating higher revenue from financial market transactions.

In comparison to the previous year, where the STT on futures and options remained lower, this increase signifies a shift towards leveraging financial market transactions for revenue generation. This move may affect trading volumes and investor sentiment in the short term but could stabilize over time as the market adjusts.

Simplification of Capital Gains Taxation

The budget proposes a significant simplification of capital gains taxation. Short-term capital gains on certain financial assets will now attract a tax rate of 20%, while other assets will continue with the existing rates. Additionally, the exemption limit on certain financial instruments for capital gains has been increased to ₹1.25 lakh per year.

Unlisted bonds, debentures, debt mutual funds, and market-linked debentures will attract capital gains tax irrespective of the holding period. This move is aimed at reducing complexity in the tax structure and providing clarity to investors. Compared to the previous budget, this change is a step towards a more straightforward and investor-friendly taxation regime.

Decriminalization of Delays in TDS Payments

To reduce the compliance burden on taxpayers, the budget proposes to decriminalize delays in TDS payments up to their filing due date. Additionally, the TDS rate on e-commerce operators has been reduced from 1% to 0.1%. This initiative aims to foster a more taxpayer-friendly environment and reduce litigation.

In contrast to previous years, where delays in TDS payments could lead to severe penalties and legal issues, this decriminalization represents a significant shift towards a more lenient and supportive tax administration.

Review of Income Tax Act of 1961

The Finance Minister announced a comprehensive review of the Income Tax Act of 1961 to be completed within six months. This review aims to reduce litigation and simplify the tax regime, especially for charities. Two tax exemption regimes for charities will be merged into one to streamline compliance.

This initiative builds on the government’s ongoing efforts to modernize and simplify the tax code, making it more accessible and less burdensome for taxpayers.

Abolition of Angel Tax

In a significant move to support the startup ecosystem, the budget abolishes the Angel Tax for all classes of investors. This tax had previously been a point of contention for startups and investors, often leading to disputes and legal challenges. The abolition of this tax is expected to encourage more investment in startups and foster innovation and entrepreneurship.

Exemption of Custom Duty on Medicines for Cancer Patients

The budget also includes measures to support healthcare, particularly for cancer patients. Three more medicines have been fully exempted from custom duty, providing much-needed relief to patients and reducing the cost of treatment. This builds on previous efforts to rationalize customs duty rates and make essential medicines more affordable.

Fiscal Deficit and Revenue Estimates

The fiscal deficit for the year is estimated at 4.9% of GDP, with net tax receipts projected at ₹25.83 lakh crore. The government has committed to maintaining fiscal consolidation, aiming for a deficit below 4.5% of GDP by 2025-26. This reflects a cautious approach to balancing economic growth with fiscal responsibility.

In comparison to the previous year’s fiscal policies, this budget continues the trend of gradual deficit reduction while ensuring adequate funding for key initiatives.

Employment and Skilling Initiatives

A significant focus of the budget is on employment and skilling. An allocation of ₹2 lakh crore has been made to employ 4.1 crore youth over the next five years. Additionally, ₹1.48 crore has been earmarked for skilling initiatives, aiming to upskill 20 lakh youth over the same period. The budget also proposes upgrading 1,000 industrial training institutes and launching internships in 500 companies for one crore youth.

Compared to previous years, this budget places a stronger emphasis on direct employment generation and skilling, addressing the critical issue of unemployment and skill gaps in the workforce.

Land and Labour Reforms

The budget outlines comprehensive land-related reforms, including digitization of terrestrial maps, assignment of unique Aadhaar numbers for lands, and establishment of a land registry. These reforms aim to streamline land administration and improve transparency in land transactions.

On the labor front, the government will revamp the Shram Suvidha and Samadhan portals to enhance compliance and facilitate a range of services for labor, including employment and skilling.

Expansion of Space Economy

The budget continues to emphasize the expansion of the space economy, aiming to grow it fivefold in the next ten years. A ₹1,000 crore venture capital fund will be set up to support this sector. This initiative builds on previous efforts to position India as a global leader in space technology and innovation.

Tourism Development

Tourism receives a boost with proposals to develop corridors around significant spiritual sites such as the Vishnupad temple in Gaya and the Mahabodhi temple in Bodhgaya. The budget also includes comprehensive development initiatives for Rajgir and Nalanda in Bihar, as well as support for tourism in Odisha.

Rural Development and Infrastructure

A substantial allocation of ₹2.66 lakh crore has been made for rural development, including infrastructure projects and the construction of three crore additional houses under the PM Awas Yojana. This reflects a continued commitment to improving living standards and infrastructure in rural areas.

The Union Budget 2024 introduces several significant reforms and allocations aimed at stimulating economic growth, simplifying taxation, and addressing critical sectors such as employment, healthcare, and rural development. These measures, combined with a focus on fiscal consolidation and modernization of tax laws, position the budget as a comprehensive plan for sustainable development.