Union Budget 2024-25 Explained: Paving the Path to a Developed India by 2047
The Final Budget for 2024-25 marks the start of the third consecutive term for our elected government. Building on the proposals from the interim budget, this budget outlines a detailed roadmap towards achieving our national goal of “Viksit Bharat” (Developed India by 2047). The main themes include employment, skill development, support for MSMEs, and infrastructural and agricultural development.
Budget Overview
- Total Expenditure: ₹48.21 lakh crores
- Net Tax Receipts: ₹25.83 lakh crores
- Market Borrowings: ₹11.63 lakh crores
- Fiscal Deficit: 4.9% of GDP, with a target to reduce it to below 4% over the next four years.
Here is the breakdown of three key changes affecting private investment:
Major Changes in Tax Structure
- Long-Term Capital Gains (LTCG) on Listed Securities:
- New Tax Rate: 12.50% (previously 10%)
- Exemption Slab: Enhanced to ₹1.25 lakh (previously ₹1 lakh)
- Effective Date: July 24, 2024
- Long Term Capital Gains on Unlisted Shares and Immovable Property:
- New Tax Rate: 12.50% (previously 20%)
- Indexation Benefit: No longer available
- Effective Date: July 24, 2024
- Taxation on Unlisted Bonds, Debentures, Debt Mutual Funds, and Market-Linked Debentures:
- Tax Rate: Continues to be taxed at applicable slab rates as Short Term
Budget 2024: Proposed tax rates
| Asset | LTCG Tax Rate (Old) | LTCG Tax Rate (New) | STCG Tax Rate (Old) | STCG Tax Rate (New) |
| Listed shares & equity mutual funds | 10% after Rs 1 lakh | 12.5% after Rs 1.25 lakh | 15% | 20% |
| Unlisted shares | 20% with indexation benefits | 12.5% | Slab rate | Slab rate |
| Unlisted bonds & debentures | 20% w/o indexation | Slab rate | Slab rate | Slab rate |
Notes:
- For listed shares and equity MFs, the holding period for LTCG is 12 months; for all other assets, it is 24 months.
- Changes are effective immediately, except for gold funds and international funds, which will be effective from April 1, 2025.
- Buyback Rule Change:
- Effective Date: October 1, 2024
- Buyback amount will be considered a dividend and taxed at slab rates.
- The cost will be treated as a capital loss and allowed to be set off.
Impact on Investors
The increased LTCG tax rate may discourage long-term investments in listed equity, potentially making unlisted markets more attractive.
Changes to Capital Gains Tax for Shares Sold in IPO
- Full Tax Applicability: Shares sold via the OFS route in an IPO will now be subject to full capital gains tax.
- Removal of Grandfathering Benefit: The budget removes the benefit previously available for LTCG calculations on shares. The lack of grandfathering provisions means the higher tax rate applies to all accumulated gains.
- Previous Grandfathering Provisions:
- Investors could use the FMV of shares as of January 31, 2018, instead of the actual purchase cost when calculating gains.
- Example: If shares were bought for ₹100 and their FMV on January 31, 2018, was ₹120, any gain up to ₹20 would be exempt if sold after one year.
- Current Budget Changes:
- The budget introduces a formula linking the purchase cost to the indexed value as of January 31, 2018, resulting in a higher taxable gain.
- Previous Grandfathering Provisions:
Impact on Investors and Founders
- Reduced Returns: The changes will reduce returns for investors, promoters, and startup founders selling shares during an IPO.
- Private Equity (PE) and Venture Capital (VC) Funds: The impact extends to PE and VC funds, which often rely on IPOs as an exit strategy.
Angel Tax Abolished for All Classes of Investors
What is Angel Tax?
- Introduced in 2012 as Section 56(2)(viib) of the Income Tax Act, targeting the issuance of shares by unlisted companies.
- It taxed any premium paid by investors above the fair market value of the shares as “income from other sources.”
The budget has abolished the angel tax for all classes of investors.
Implications on the Ecosystem:
- Encourages innovation and growth by reducing tax burdens on start-ups.
- More investors may be willing to invest in early-stage companies, leading to increased funding and development opportunities for new ventures.
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