Budget 2024 shakes up tax rules, hitting stocks, properties, and gold

Nirmala Sitharaman has splashed cold water to sober a party running ahead of reality. The message is clear-cut down speculation on stocks and properties, pay more tax on gains from share sales as well as money received on stock buybacks by companies, and be ready to part with a bigger slice of profits from the sale of gold and properties bought years ago. And, for most among the middle-class taxpayers, there is only a small easing of the tax burden, with benefits capped at ₹17,500 a year.As widely anticipated, there is a sharp increase in transaction tax-by as much as 50-60%-on sale of equity futures and options, whose spiralling trade volumes have been a concern for the market regulator and New Delhi. Besides making stock buybacks unattractive for promoters and large shareholders, gifts by corporates to relatives and associates, during family settlements or restructuring, will now come under tax.

Incentivising the Burden
The deal is simple. The government will, in exchange, neither reopen your books of accounts beyond five years, nor question startups on their valuations; it will pardon unreported foreign bank accounts and Esops valued below₹20 lakh, and spare benamidar (or fronts for benami deals) from prosecution, if they come clean.

The finance minister’s primary focus has been to generate revenue from growing segments such as the financial markets, and properties, to bankroll schemes for increasing jobs while streamlining the rules. “The tone of simplification should continue when taxation laws are overhauled and replaced with new code,” said Siddharth Banwat, founding partner at chartered accountants S Banwat & Associates LLP. “It is essential for the government to realise that simplification in taxation laws will bring in more compliance and widening of tax base as well.”With more-than-budgeted collections on both the direct and indirect taxes front, the government has taken multiple steps to simplify rates, mitigate and amicably settle tax disputes, said Ashish Mehta, partner at Khaitan & Co.Sum of It All
Dalal Street, initially rattled by the increase in short- and long-term capital gains to 20% (from 15%) and 12.5% (from 10%), later bounced back.

With 2001 remaining as the ‘base year’ under regulations, the impact from abolition of indexation could work out as follows-a property bought for Rs 10 lakh in 1980, valued at Rs 1 crore in 2001, and sold at ₹5 crore in 2024, would attract a capital gain of Rs 4 crore.

Till now, the capital gain would have been around Rs 1.5 crore (due to indexation benefit).

While a dramatic drop in import duty on gold and silver is driven by the recent surge in smuggling, the budget proposals are a harbinger of a direct tax code, which could well be the first step toward the much-awaited simplification of India’s regulations. For instance, the capital gains tax on unlisted shares, foreign investments, bonds and properties sold two years after the purchase would be taxed at 12.5%.

It’s evident that several proposals are an outcome of repeated representations from industry associations that are entangled in lengthy litigation with the Income Tax Department and were often pulled up for reporting errors and possible escapement of tax in old assessments.

Against this backdrop, the budget has done away with ‘angel tax’ on the unjustified premium at which shares were sold (often to foreign investors), proposed a new mechanism to settle tax disputes that are at various stages of appeals, and lowered the reassessment period from 10 years to five years for untaxed income of Rs 50 lakh or more.

However, decisions like the one relating to gifts by companies will plug a gap that was largely overlooked. “Now, transfers to trusts only by individuals or Hindu Undivided Families (HUFs) will qualify for exemptions under revised amendments,” said Mitil Chokshi, senior partner, Chokshi and Chokshi. “The amendments likely aim to curb the potential misuse or exploitation of tax exemptions by corporate entities in the context of gifting and trust transfers. It underscores a stricter differentiation between individual and corporate tax treatment in such transactions.”