Capital gains tax: Will Budget 2025 bring relief to investors? | Stock Market News

With less than a week to go for the Union Budget 2025, discussions around capital gains tax have centre stage among market participants. While the concept of capital gains tax is not new, its structure and recent amendments have significantly influenced market sentiments.

Capital gains tax is levied on the profit earned from the sale of assets such as equities, debt instruments, real estate, gold, or mutual funds. The tax structure varies depending on the asset class and the holding period, which classifies gains into short-term and long-term categories, each with distinct tax rates.

Last year’s Budget 2024 introduced significant changes to the capital gains tax structure, raising the short-term capital gains tax on equities held for less than a year from 15 per cent to 20 per cent. Additionally, the long-term capital gains tax on equities held for more than a year was increased from 10 per cent to 12.5 per cent. As Budget 2025 approaches, market experts weigh in on what they expect this year.

Expert Insights on Budget 2025 Expectations

Jimeet Modi, Founder and CEO, SAMCO Securities

Jimeet Modi emphasized that India’s public markets were thriving a couple of years ago, enjoying significant liquidity and commanding a premium over other emerging markets. However, the measures introduced in recent budgets and through regulatory actions have negatively impacted this premium and liquidity.

Modi noted that regulatory changes have drastically reduced the daily turnover in the currency derivatives market from ₹40,000 crore to ₹5,000 crore. Similarly, actions in the equity derivatives segment and the hike in Securities Transaction Tax (STT) have slashed market liquidity by 30-40 percent.

In his view, the upcoming budget should prioritize restoring the currency derivatives market, which is essential for India’s journey toward becoming a developed economy. Additionally, rationalizing STT rates on futures, options, and other instruments is crucial to improve liquidity. While such measures may result in short-term revenue losses, Modi believes these will be offset by higher participation and liquidity.

Alekh Yadav, Head of Investment Products, Sanctum Wealth

Alekh Yadav anticipates that the Union Budget 2025 will closely resemble previous ones, with no significant changes on the horizon. He expects the government to continue focusing on fiscal consolidation, a recurring theme in past budgets.

While capital expenditure will remain a priority, Yadav does not foresee substantial growth in this area. Instead, he expects minor adjustments, particularly in areas like tax rationalization, following the changes to capital gains tax introduced last year. He also anticipates measures to boost consumption as part of the government’s strategy.

Pranav Haridasan, MD and CEO, Axis Securities

Pranav Haridasan highlighted the need for rationalizing capital gains tax to simplify compliance and encourage broader market participation. While there is speculation about a potential cut in Securities Transaction Tax (STT), he believes such a move is unlikely given the government’s revenue priorities.

Instead, Haridasan expects targeted relief for individual taxpayers through enhanced deductions under Section 80C and potential tweaks to the new tax regime aimed at boosting consumption.

Narinder Wadhwa, Managing Director & CEO, SKI Capital

Narinder Wadhwa underscored the importance of maintaining a stable tax regime, cautioning against increases in Securities Transaction Tax (STT) or long-term capital gains (LTCG) taxes, which could deter both retail and foreign investors. A stable or relaxed LTCG framework could significantly improve investor sentiment.

Rajul Kothari, Partner, Capital League

Rajul Kothari raised concerns about the impact of recent tax changes on debt funds, particularly for retirees seeking low-risk investments. He pointed out that the long-term capital gains tax on debt funds, now equivalent to fixed deposit taxation, has pushed retirees toward hybrid funds with an equity component of 15-20 per cent. This exposure to equity markets increases their risk unnecessarily.

Kothari urged the government to exempt long-term capital gains tax for investors aged 60-65 years or older at the time of redemption. Such an exemption, he argued, would encourage retirees to utilize debt funds, providing them with stable, low-risk investment options uncorrelated with equity market volatility.

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