Union Budget 2024 raised capital gains and transaction taxes, causing a significant stock market crash, and impacting investor wealth dramatically.

 The presentation of the Union Budget 2024 by Finance Minister Nirmala Sitharaman shook the Indian market and caused a steep fall in both Sensex and Nifty. It was more than a 1,000-point drop, thereby wiping out investor wealth by Rs 8.85 lakh crore. What has caused this sudden fall of the market, and what it means for investors are the key things that need to be looked at more closely.

Market Performance on the Day of Budget Announcement

Sensex tumbled 1,266.17 points to 79,235.91, while the Nifty 50 fell 435.05 points to 24,074.2 on the day of the budget announcement. It was a massive fall that caused a huge erosion in investor wealth, falling to Rs 439.46 lakh crore from Rs 448.32 lakh crore in the previous session. It was dragged lower by the fall of major stocks such as Reliance Industries, Larsen & Toubro, HDFC Bank, ICICI Bank, State Bank of India, Bajaj Finance, Bharti Airtel, and PowerGrid.

The Role of Capital Gains Tax

One of the major triggers of the stock market crash was the increased taxation on capital gains. It announced an increase in LTCG tax from 10% to 12.5% and STCG on some assets to 20%. Other than this, it also enhanced the LTCG tax exemption limit from Rs 1 lakh to Rs 1.25 lakh.

These changes have been rather viewed negatively by financial experts. According to personal financial mentor Kirang Gandhi, the increase in taxation led to market volatility as investors responded to the increase in taxation. Even though the increased taxes are aimed at collecting more in revenues, it could deter short-term trading and encourage long-term investments; it may see a change in market dynamics over the next couple of months.

Sandeep Chilana of CCLaw, Managing Partner, also pointed out that changes in tax rates might affect retail investor sentiment, mainly because consistency in tax policy has been seen raising apprehensions of further hikes in the future.

Rise in STT

Another prominent cause for the market fall was the increase in securities transaction tax on F&O trades. STT on the sale of an option in securities was hiked from 0.0625 percent to 0.1 percent of the option premium, and that on the sale of futures in securities from 0.0125 percent to 0.02 percent of trade price. This direct tax on the purchase and sale of listed securities seemed to dampen market sentiment.

Though the budget did have some positive things—from boosting consumption to putting a thrust on capital expenditure, Gaurav Dua, head of capital market strategy at Sharekhan said alteration in capital gains tax and rise in STT hurt the sentiments.

Tax on Buy-back of Shares

He sprung more in store by increasing capital gains tax and STT and also introduced a tax on income received from share buyback, which presently is exempt from income tax for the shareholders. This blow was another blow to investor sentiment, which contributed to the overall market downfall.

Broader Implications and Future Outlook

The Union Budget 2024 has brought in a few measures that can potentially change the face of the Indian stock market. The immediate reaction was that of concern and caution, with the sharp market decline; however, these are measures that could be pretty sustaining for the investment environment in the future.

According to Shripal Shah, Kotak Securities’ MD and CEO, the market would adjust to the new tax measures after some time and finally move toward balanced and orderly growth in the capital market.

Conclusion

The sharp fall in the Indian stock market after the Union Budget 2024 underlines the mighty impact of tax policies on investor sentiments. Add to that the double whammy in capital gains, a hike in STT, and the new tax on share buybacks—those were the triple whammy that ended up as important contributory elements to the market crash. While all these measures are arguable and seek to improve revenues and bring in more sustainable growth, their impact on the market has been jarringly negative—reflecting, perhaps, the thin line that policymakers walk daily between sowing investor confidence and market stability.