Indian equities pared most of the losses but still closed in red after hikes in capital gains and securities transaction taxes (STT) in the Union Budget 2024 sparked a massive sell-off earlier in the day.
Finance Minister Nirmala Sitharaman announced today the Long Term Capital Gains taxes will be hiked from 10 to 12.5% and Short Term Capital Gains taxes on some assets from 15 to 20%. The securities transaction tax (STT) on futures and options will be increased to 0.02% and 0.1% respectively, she said.
After the announcement, the 30-share Sensex pack fell over 1,000 points and briefly slipped below the 80,000 mark. At the end of the day, both Sensex and Nifty had pared most of the losses. The BSE benchmark closed at 80,429.04 points while the 50-share Nifty pack closed at 24,479.05.
Titan, ITC, and Adani Ports were among the leading gainers among the BSE pack while the major losers included State Bank of India, Bajaj Finance, and Larsen and Toubro.
Ms Sitharaman later defended the LTCG tax move, saying that the average taxation has come down.
A Finance Ministry official explained that the capital gains tax has been rationalized. "Earlier it was 10% for listed equities and 20% for unlisted equities. Both will now be taxed at 12.5%," said the official.
Ashish Chauhan, CEO-MD of the National Stock Exchange, termed the hike in STT and capital gains taxes as "minor changes" that will not impact markets much. Speaking to PTI, he called them "baby steps" towards transitioning to a regime where all the incomes of a person are taxed.
The moves, however, will ensure that capital formation continues in the economy, he added. He further said the market sell-off- which led to a crash after Ms Sitharaman's Budget speech – was due to investors not understanding the implications of the moves.