Budget 2024: 2 reasons why Indian stock market nosedived almost 2% after FM Nirmala Sitharaman said…

Budget 2024: Indian stock market benchmarks, the Sensex, and the Nifty 50, plunged almost 2 per cent each as Union Finance Minister Nirmala Sitharaman, in her Budget 2024 speech, proposed increasing taxes on market gains, dealing a blow to expectations that the government may leave them unchanged.

Sensex fell almost 1.6 per cent, and the Nifty 50 plunged 1.8 per cent in the intraday session after Sitharaman proposed an increase in market gain taxes.

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There are two main reasons why the Indian stock market nosedived today:

1. FM doubles STT 

In a move that appears to aim at reining in rampant F&O trading, Sitharaman declared raising the Security Transactions Tax (STT) rate to 0.02 per cent and 0.1 per cent, respectively. So, after implementing this budget proposal, equity and index traders will have to pay double the tax for their trades.

“It is proposed to increase the rates of STT on the sale of an option in securities from 0.0625 per cent to 0.1 per cent of the option premium, and on sale of a futures in securities from 0.0125 per cent to 0.02 per cent of the price at which such futures are traded,” the FM said in her Budget speech.

2. LTCG, STCG tax rates increased

The FM announced that long-term capital gains (LTCG) on all financial and non-financial assets will attract a tax rate of 12.5 per cent from 10 per cent earlier. She also announced that short-term gains on certain financial assets shall henceforth attract a tax rate of 20 per cent from 15 per cent earlier.

"Short term gains on certain financial assets shall henceforth attract a tax rate of 20 per cent, while that on all other financial assets and all non-financial assets shall continue to attract the applicable tax rate," the FM said.

"Long term gains on all financial and non-financial assets, on the other hand, will attract a tax rate of 12.5 per cent. For the benefit of the lower and middle-income classes, I propose to increase the limit of exemption of capital gains on certain financial assets to ₹1.25 lakh per year," said the FM.

The market witnessed a knee-jerk reaction to the upward revision in LTCG tax. However, it pared losses later. The Sensex and the Nifty 50 were just half a per cent down around 1:10 pm.

Some experts pointed out that the increase in the LTCG tax was not huge and should not impact market sentiment significantly.

"The tax blow is not big. There is also an increase in exemption also from ₹1 lakh to ₹1.25 lakh. There were fears that LTCG could be increased to 15 per cent or even 20 per cent. It has gone to just 12.5 per cent from 10 per cent earlier. Overall, the Budget is good for the market," said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Vijayakumar pointed out that the biggest positive in the Budget was fiscal deficit. The government remained fiscally prudent and used a bulk of RBI's dividend to bring the fiscal deficit down to 4.9 per cent.

"For the year 2024-25, the total receipts other than borrowings and the total expenditure are estimated at ₹32.07 lakh crore and ₹48.21 lakh crore, respectively. The net tax receipts are estimated at ₹25.83 lakh crore. The fiscal deficit is estimated at 4.9 per cent of GDP," said the FM.

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