February 8, 2025
Financial Assets

Budget tax proposals that made headlines


NEW DELHI: The recent Union Budget introduced a series of tax proposals aimed at reforming the landscape of direct and indirect taxes in the country. Not all of them, though, were palatable to taxpayers. While attempting to simplify the tax structure, the government unwittingly antagonised the middle class, the ruling party’s core vote bank. The hue and cry that followed forced the government to partially rollback one of its most controversial proposals — removal of indexation benefits on the sale of real estate.

We will get to that in a bit, but first the key highlights of the Budget tax proposals. They include an increase in the standard deduction to encourage the adoption of the New Tax Regime, minor tweaks in the tax slabs under the New Tax Regime, and changes in short- and long-term capital gains tax. For businesses, the biggest announcement came in the form of the abolition of angel tax, a levy that was anything but angelical. The Budget also tried to address the elephant in the room — unchecked equity F&O trading — by increasing the Securities Transaction Tax (STT) on derivatives trading.

Let’s first dig deeper into the controversy over long-term capital gains tax (LTCG) and the indexation benefit.

Curious case of indexation benefit

In her Budget speech, Finance Minister Nirmala Sitharaman announced that all forms of capital gains — either from financial or non-financial assets — would attract a tax of 12.5%. This was done with the intention of uniformity in taxation across all asset classes. Bureaucrats in the ministry of finance justified it by saying that the government doesn’t want any asset bias in taxation.

What was not mentioned in the FM’s speech, but smartly tucked away in the Finance Bill, was the fact that the government removed the indexation benefit on capital gains from non-financial assets such as real estate, gold, etc. It took some time for tax experts and investors to digest the impact of the government’s budget proposal.

Long-term capital gains from gold and real estate were taxed at 20% with indexation benefit, but by putting these assets in the same basket as equity, the government lowered the rate from 20% to 12.5% and removed the indexation benefit. What indexation does is it increases the purchasing cost of the asset by adjusting for inflation.



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