Impact Of Union Budget On Different Investment Classes

The Indian Finance Minister presented the Union Budget for 2024–25 (Budget 2024) on July 23 after the Narendra Modi led Government came into power to serve its consecutive third term. As no political party could manage an absolute majority on its own in the Lok Sabha, the focus was expected to be towards impetus to job creation and greater public welfare. With a GDP growth forecast estimated at 6.5% to 7%, Budget 2024 seeks to present a detailed roadmap for India’s pursuit to become a developed nation by 2047. The budget proposals emphasis on infrastructure, skill development, manufacturing energy security, urban development, innovation and R&D, and next-generation reforms around labour, land, and foreign direct investments, among others. On the tax front, the theme of the announcements continues to be stability and certainty with no surprises. The proposed changes to capital gains on financial assets in the Budget have reduced the tax disparity among various investment avenues, including listed equity, private equity, gold, Real Estate and international funds. This enables investors to build a diversified portfolio across multiple asset classes in a more tax-efficient manner.
  • Listed Equity – Impact: Negative
  • The increase in Long Term Capital Gains by 25% (from 10% to 12.5%) and Short Term Capital Gains by 33% from 15% to 20% in a negative for investors in the form of an increased tax outgo.
  • Unlisted Equity – Impact : Positive
  • Favourable long term tax at 12.5% compared to previous tax rate of 20% with indexation making the asset class more attractive.
  • Reduced tax disparity compared to listed equities can result in investors diversifying equity portfolios between listed & unlisted in a more tax efficient manner.
  • Abolishment of Angel Tax could result in boosting the start-up ecosystem in India
  • Debt : Impact : Neutral
  • No major change in the Debt Taxation.
  • The government remains committed to fiscal prudence, with the fiscal deficit projected to narrow to 4.9% of GDP in FY24-25 and further to 4.5% in FY25-26. This demonstrates a glide path towards lower deficits, which is positive for debt investors.
  • The increase on Capital gains for Listed Bonds/Debentures is Negative
  • Real Assets: Impact Real Estate: Broadly Neutral to Positive, REITs/InvITs: Positive
  • In case of Real Estate, the previous tax rate of 20%, combined with indexation for long-term holdings, was favoured, especially given the typically long holding periods of these assets. This resulted in a significant indexation benefit and minimal tax liability. Considering the revision in the finance bill whereby instead of doing away with the indexation benefit it is now at an option of the investor to choose old vs new provision while selling there may be neutral to positive impact on the asset currently.
  • The proposed changes have made the LT tax of RE assets/REITs equal to Equity taxation
  • Holding period for taxation has been reduced for REITs/InvITs with listed REITs/InvITs being at par with listed Equity which will give a boost to this asset class