Budget 2024: Uday Kotak lauds simplified capital gains tax, MSME support. STT hike ‘necessary sand in the wheels of…’

Uday Kotak, Managing Director and CEO of Kotak Mahindra Bank, has lauded the 2024 Union Budget, stating that it's a well-rounded approach towards fiscal discipline, employment generation, and support for Micro, Small and Medium Enterprises (MSMEs). Kotak lauded the government's efforts to simplify capital gains tax and noted the strategic increase in the Securities Transaction Tax (STT) as a necessary measure to manage high derivative volumes.

"Well thought out budget. Fiscal discipline maintained. Right focus on employment and MSMEs. Capital gains tax is smartly simplified, leaning in favour of revenue. STT increase is necessary sand in the wheels of high derivative volumes. The paradigm shift of saver to investor continues," Kotak tweeted.

The short-term capital gains tax has been raised from 15% to 20%, while the long-term capital gains tax has been increased from 10% to 12.5% in the budget. These higher taxes are expected to dampen trading demand.

Additionally, the securities transaction tax (STT) on futures has been increased from 0.0125% to 0.02%, and on options from 0.0625% to 0.1%. The most significant downside for the stock markets is the rise in STT, as it could lead to reduced trading volumes, negatively affecting companies associated with the stock market. It is important to note that investors and traders must pay STT regardless of whether they make a profit or incur a loss, whereas capital gains tax is only paid when a profit is realised.

The Centre has trimmed its fiscal deficit target for FY25 to 4.9% of GDP, significantly lower than the 5.1% target announced during the interim budget in February.

During her budget speech on Tuesday, Finance Minister Nirmala Sitharaman said the fiscal deficit target for 2024-25 will be about 200 basis points below the earlier estimate for the ongoing fiscal year.

The government aims to reduce the fiscal deficit to 4.5% or less by FY26, maintaining its proposed fiscal glide path by the financial year 2025-26.