BUDGET 2024 & IMPACT ON KEY PERSONAL FINANCE ELEMENTS

The most awaited Union Budget 2024 was announced today!

While keeping the focus of this budget around four- i.e. POOR, YOUTH, WOMEN & FARMER, Madam Finance minister has put in efforts to give a long-term road map for the economy!

With announcements such as paid internships for the youth, Special credit guarantee schemes for MSMEs, announcing many measures to boost agriculture & tourism, and many other major proposed developments, she has made some big announcements related to Personal Finance too!

Let’s look at them & their likely impact on our personal finance elements:

1. Comprehensive review of the Income Tax Act, 1961:

The Income Tax Act 1961, comes with many parameters on taxation. With age, it was important to take a comprehensive review of the same so that we can refer it simply.

The same has been announced in this budget. We can hope for better outcomes & simplification on the taxation system now.

2. Increase in the limit of deduction in Employer’s contribution to employees from 10% to 14%:

This will now be applicable to all Public sector companies, Private sector companies under new regime.

My Inputs:

National Pension scheme is the investment option for ‘Retirement planning benefit’. This option allows us to stay invested till our age 60. Gives us tax benefits. We invest in a portfolio mix of Equity, Government Securities, Debt etc.

Given the long term, evolving nature of the investment option, one should remain invested in National Pension Scheme. If your employer now starts to offer NPS for you, you can opt for it considering your other elements of investment planning.

3. Changes in capital gain tax:

Before this budget, listed & non-listed financial assets used to have different treatments for the capital gain. However, this budget has made it simpler to look & consider. But while doing so, it has increased tax rates for ‘Short term capital gains’ & ‘Long term capital gains’.

Let’s look at them:

• Equity & Equity oriented Mutual funds:

With the above, you can understand, the tax rate has been increased from 15% for STCG to 20% now. For LTCG, the same has been increased from 10% to 12.5% now.

The exemption limit for LTCG is raised to Rs 1.25 lakhs now from earlier Rs 1 lakhs. Which simply means you need to pay LTCG over & above the gains of Rs 1.25 lakhs now.

My Inputs:

Increase in tax rates will surely increase the tax outgo but this doesn’t mean you should think negative about it. Equity mutual funds remain important investment options for long term goals when we invest suitably in them.

Tax is a part & parcel of the investment journey. Stay focused on your goals, portfolio allocation & risk appetite.

• Gold & Silver:

Please refer below provision announced in the budget 2024-

Gold & Silver are precious metals we use for consumption. Gold is widely popular for hedging & diversification in the portfolio.

Before this budget, these two assets used to have different tax treatments & holding periods too.

With the above table, this has undergone a change.

Earlier, if one holds gold & silver for a period of more than 36 months, then it used to enjoy indexation benefits. This means, the purchase value of the property was allowed to inflate as per the applicable CII number i.e. Cost Inflation Index. Based on the indexation value, tax as per 20% was applicable.

With this budget today, holding period has been reduced to 24 months now.  The long-term gains will now attract tax @12.5% flat.

On the other hand, custom duty on these two metals has also been reduced to 6%. This will help in reduction in prices.

My Inputs:

Gold is suitable for diversification & consumption. One needs to check own asset allocation, goals related to these precious metals & then continue to invest.

Do not hoard gold or silver reserves but invest wisely.

• Real Estate:

Please refer the below for real estate tax treatment in the budget 2024-

Real estate is one of the favorite asset classes for many. This budget has made changes in the tax treatment as above.

While keeping the short-term capital gain tax treatment as same, it has made changes in the holding period & tax implication or Long term capital gains.

Earlier, holding period for LTCG was 36 months or more. Investor used to get indexation benefit where tax was applicable at 20%.

With this budget, the holding period for LTCG has been reduced to 24 months or more with tax implication as 12.5% on LTCG.

This means one can not inflate the purchase value as per CII to receive indexation benefit under LTCG. The gains under long term will be taxed at 12.5% now onwards.

On the other hand, this budget calls for affordable housing. Finance minister has also asked special treatment for women property buyers & has also asked states to consider reduction in stamp duty.

My Inputs:

Real estate is for use & consumption. This is an illiquid asset though is tangible in nature & gives status & pride. One should reconsider investing in real estate for ‘investment purpose only’. As this will now attract higher taxes once you sell the property.

However, with the provisions like reduction in stamp duty etc., first time buyers can have extra edge to fulfill their property dream.

4. Changes in new tax regime slabs:

New tax regime for income tax returns was introduced & as per the budget speech, 2/3 of the income tax payers, opted for this regime in last FY.

This budget has made some changes in the tax slabs. Also, it has increased the standard deduction from

Rs 50,000 to Rs 75,000 under new regime. This will reduce the tax burden for income tax payers.

Also, for family pension holders, this deduction has been increased from Rs 15,000 to Rs 25,000 now.

Following are the changes in the new tax regime slabs:

With the above changes new tax regime is available for tax payers now.

Each budget comes with something new for us where we get direct & indirect impact on our personal finance. It is better to stick to our asset allocation, review our investments, set purpose & be financially aware always!

I ask you not to make any sudden changes or take any hasty decisions wrt your investments due to provisions in the budget. Better to connect with your adviser for any queries.