Union budget: 24–25

Union budget 24-25  is the most talked-about budget ever. From investor point of view, it seems in market it has received too much attention and grievance so here in this article we will discuss about all the pain points from the investor perspective in easy manner. What are the most important things we investors must know!  Let’s get a basic understanding of government budgeting.

 

 

1. Basics of Union budget 24–25

• Term understanding Union budget 24–25

The Union Budget, which is also called the Annual Financial Statement, has two kinds of budgets the “Interim Budget” and the “Union Budget” both of which are presented under the authority of the central government.

• Timing of budget presentation 

The union budget is presented annually, whereas the interim budget is presented right before the general election. In 2024, we had an interim budget held on February 1^st and a union budget on July 23rd, as we all know.

• Contents of interim & union budget

In the interim budget, we have information on the previous year’s income and expenses and on the union budget we have information on the previous year’s income and expenses, as well as how this year’s government will raise funds also it talks about what are the sector funds is going to be spent.

• Brief discussion around it

Now, let me tell you, because some of you might be wondering that the government has a lot of earnings, why would they have to raise funds? FY-1951–51 was the one and only year till now that had a surplus budget, except that year we always had a deficit budget. Budgets in terms of the availability of funds have three positions: surplus budget, balanced budget, and deficit budget.

A surplus is when the government has more earnings than expenses; a balanced budget is when the government’s income and expenses are in balance; when income is less but expenses are higher, that’s called a deficit budget, which is exactly what we get every year. In this basic understanding, we will also know the structure of the union budget.

• Basic structure of union budget

In order to understand the Union budget, let’s clear out the budget receipts These are complete review of revenue receipts and capital receipts. Capital receipts are debt receipts and non-debt receipts. Market loans, short-term bank debt, treasury bills, Gold bonds and many more—fundamentally,  capital receipts decrease the asset value for our government and increase the liabilities.

When it comes to revenue receipts, it are kind receipts which don’t impact any liability for the government or decrease its assets. And revenue receipts are purely recurring, that means it keep happening, such prime example is tax government collects it doesn’t stop government from collecting. Here are two types of revenue: tax revenue and non-tax revenue. Tax revenue are things like income tax, Corporate tax, GST, Custom duty, and excise duty.

Also comes non-tax revenue, as name says, which doesn’t come from the tax grid, such as traffic fine you pay, Dividends government gets, and interest government gets. Budgets also present changes in taxes and many more yet these understanding are enough for today’s article. This was a crisp understanding now we can move on to the statement what we should know as investor.

 

 

2. Taxes on stocks Union budget 24–25

• Tax rate changes of LTCG, STCG, and SST Union budgets 24–25

Whoever invest in stock market is familiar with the taxes called LTCG (long-term Long Term Capital Gain Tax) and STCG (short-term Short Term Capital Gain Tax). Previously, whoever used to fill out the old tax regime used to pay 10% LTCG and 15% STCG. Now,  people has to pay 12.5% on LTCG and 20% on SCTG and SST ( Securities Transaction Tax), which is now at 0.1%, which was at 0.0625%.

For those who don’t know, LTCG is when you sell and book profit after a year, meaning you hold more than 365 days, then LTCG you pay, When you hold less than a year, you pay STCG, which was 15% now at 20% If you don’t invest that much, it might not have significant impact on you now.

•     Burden and small benefit Union budget 24–25

But those who invest significant money, it’s a huge burden, mainly for those who frequently book profit. Although the tax exemption, which was previously 1 lac, has now been increased to 1.25 lacs if you make 1.25 lacs through one pan card on your Demat account.

•    Solutions as tax harvesting and real-estate investment

Here is my suggestion, which would be purely tax harvesting. You have to sell before you make more than 1.25 lacs, then repurchase your portfolio again. Here you pay 0% tax or else if your corpus is large and you have position to invest in real estate, you can do that because on the profit of stock market, which is reinvested on real estate, has no tax. 

 

 

3. Taxes on real-estate Union budget 24–25

• Abolishment of indexation & reduction of property taxes Union budget 24–25

Taxes for real-estate has been most traumatizing thing ever! in this segment. Let me tell you one thing: previous year, the LTCG tax on selling your property was at 20% whereas this year the same tax is at 12.5% Now you seem to be so happy, right? But wait, there is a concept of benefits called “Indexation Benefits.“

• Example of how abolishment of indexation affected Union budget 24–25

Now before i tell you what it is, let me start with something. Let’s say that in 2000 you bought a house for 1 lac Now, in 2024, you want to sell it You got a good price from a buyer, which is 1 crore, or almost 100x returns Now, what is the profit because tax would be on profit, You might profit is 99 lacs somehow, as per general direct calculations. But if the concept of inflation is clear to you, then you know very well that in order to calculate the real profit, you need eliminate inflation.

In simple language, inflation is the increase of CPI (consumer price Price Index) & WPI (wholesaler price Price Index) in over a period of time although in the case of assets like property CII( Cost Inflation Index) is used . You used to get 10 pieces of panipuri; do you still get? I’m sure not; that’s called inflation. So previously, the government used to provide you the indexation benefit, which used to eliminate inflation. After doing that, the profit used to subjected to a 20% tax, but now you have to pay the tax on the current selling price, or buying price, even if it’s just 12.5% but it’s worse, and trust me, this sucks! a lot. 

 

 

 4. Taxes on gold Union budget 24–25

We have seen significant impact on taxation gold too in Union budget 24–25. Previously, the holding period for coming to LTCG grid on gold was 36 months. Now that has been changed to 24 months, which is good because now you have to wait less to come to LTCG grid. Custom duty, which is also in the positive side, because now the custom duty is at only 6%, which was at 15%, a huge reduction, this will make the gold price cheaper to buy, which is a good thing for gold investment.

Now again, here comes the catch, and that is abolishment of “Indexation Benefit.” now on, you will not get the benefit of indexation. Yet here, my suggestion is that if you want gold purely for investment, then SGB (Sovereign Gold Bonds) was always the best option in gold segment. reason being that all the gains on SGB are subjected to 0% tax. Each year you get 2.5% interest, you have no safety issues, there is no storage cost, and it is liquid, so you can make it collateral. 

 

 

CONCLUSION Union budget 24–25

At conclusion about the Union budget 24–25, i would like to say that, from a long-term investor perspective, the issue is not too bad, as everyone is saying it’s only 2.5% higher than the previous tax rate. Yet by tax-harvesting you can reduce even that 2.5% tax significantly.

And here i see the opportunity for someone who kind of sells real-estate in short period of time, like 3-5 years Their indexation won’t affect too much because, on other side, they got a tax reduction of 7.5%, which is not bad. In the case of buying physical gold, i think it’s the best opportunity because of the 9% reduction in custom duty. Research more about your financial planning to make accurate decisions. I hope i made your time valuable, wish you good luck!

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