Budget 2025: Simplified capital gains tax, enhanced benefits on investors’ budget wish list | Mint

Budget 2024 eliminated indexation advantages and rationalized capital gains tax on several products. With very few notable exceptions, we anticipate that this year’s budget will mainly continue in the same direction. As demonstrated by previous budgets, the administration will probably keep concentrating on fiscal consolidation.

Union Budget 2025 wish list

Streamlining the capital gains tax is still a major priority as the Union Budget 2025 draws near.

“Some of the key demands for the rationalization of capital gains tax include lowering tax rates on long-term capital gains, revising the thresholds for LTCG tax, enhancing indexation benefits, increasing threshold limits of deductions like 54, 54F, etc., and other similar measures,” said Sofiya Syed, Direct Tax Division, Dewan P.N. Chopra & Co.

While it’s uncertain if FM Sitharaman will concede fully to the demands of capital gains tax rationalization, the market continues to expect some changes that could benefit long-term investors, added Sofiya Syed.

Budget 2024 made big changes to the capital gains tax framework, which offered investors both challenges and benefits.

“Some provisions need a relook. For instance, to streamline the capital gains tax structure by aligning tax rates/ period of holding across various sub-asset classes, for instance, treating international equities the same as domestic equities, debt funds the same as gold funds, and gold funds the same as gold ETFs.The hike in short-term rates from 15% to 20% and in long-term rates from 10% to 12.5% has raised investor tax liabilities significantly. Since now the LTCG tax on securities is on par with other assets, the Securities Transaction Tax (STT) should be abolished,” said Niranjan Govindekar, Partner, Corporate Tax, Tax & Regulatory Services, BDO India.

“All interest incomes, irrespective of their product category, are charged to tax as per the investor’s applicable slab rate. While short-term and long-term capital gains are taxed at a flat rate, interest income, too, must be subject to a flat tax rate. This will go a long way in simplifying the tax liability and making fixed-income products attractive when adjusted for inflation.

Finally, capital gains rules differ for Gold ETFs and Gold Funds. The former is more tax efficient as the holding period for long-term capital gains is one year, while the same for the latter is two years. Since the underlying asset is Gold, both the product categories must be taxed uniformly regardless of their inherent structure,” said Rahul Jain, President & Head, Nuvama Wealth.

“We anticipate this budget will largely mirror previous ones, with few significant changes expected. The government has also emphasized tax rationalisation, with notable changes to capital gains tax last year. We expect only minor adjustments this time around, rather than any major shifts. Additionally, there may be measures aimed at boosting consumption,” said Alekh Yadav, Head of Investment Products at Sanctum Wealth.

“Another aspect that the Government may consider is to exempt the long-term capital gains tax and dividends on investments in listed shares to being the individual shareholders at par with the mutual fund investors. A separate long-term investment account may be created for the same,” said Kumarmanglam Vijay, Partner, JSA Advocates & Solicitors.

“The upcoming budget holds promise for retail investors, particularly with expectations of tax relief in the lower income slabs. If the government reduces tax rates for smaller taxpayers, it could lead to higher disposable income in the hands of the common man. This increase in purchasing power has the potential to boost consumption, indirectly benefiting the stock market by spurring growth in consumer-driven sectors.

From a capital market perspective, we also hope for measures to improve sentiment in the wake of current macroeconomic challenges. While it may be optimistic, a reduction or moderation in capital gains tax or Securities Transaction Tax (STT) could significantly improve market dynamics. Such steps would not only support domestic retail participation but also make Indian equities more attractive to foreign investors. This could help counteract FII outflows, stabilize the rupee, and enhance the overall investment climate. A budget addressing these areas would be a welcome boost for the broking industry and retail investors alike,” said Shripal Shah, MD & CEO, Kotak Securities

The Budget 2024 unexpectedly removed the indexation benefit for all long-term investments in debt funds.

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Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.