Union Budget 2024: From ease of doing business to removal of LTCG, Mehta Equities shares its wishlist

Budget 2024 expectations: The Budget expectations are running high among all sectors. The current environment for the capital markets is highly favourable, characterised by an overwhelmingly optimistic sentiment among investors. The stock market is expecting a continued push for economic reforms that have seen India emerge as the world’s fastest-growing major economy. Domestic brokerage firm Mehta Equities said the Union Budget 2024 has to be a game changer and should definitely represent the reforms that the BJP government had promised to make. 

"The FY25 budget is likely to prepare ground to position India as a formidable alternative to China’s dominance in global supply chains and shall offer a crucial glimpse into the government's priorities and spending plans. The spotlight will be on the finance minister's measures to address fiscal stability, inclusive development, infrastructure investment, green growth, and strategic tax adjustments," it said in a note.

Here's the list of reforms:

1. Balance between fiscal consolidation and incremental capex

The NDA government should signal a movement towards the stated fiscal deficit target of 4.5% of GDP in FY26. The budgeted fiscal deficit to GDP ratio of the government is 5.8% for FY24. The street will spy with one big eye if the GoI lays out annual reduction targets to achieve the norm of 3% of GDP latest by FY28.

2. Investors and Traders seek removal of STT and LTCG 

Transaction cost in India is too high and LTCG and STT are seen as a sentiment dampener for the market. In 2004, the security transaction tax (STT) replaced the long-term capital gains (LTCG) tax. Budget 2018 brought back LTCG, levied again at a rate of 10% on annual gains of over Rs 1 lakh but STT was not removed. The biggest positive trigger for Dalal Street in the upcoming Union Budget 2022 could be the abolition of Securities Transaction Tax (STT). Investors will also want LTCG to be removed. This should give a boost to the new investors who have started their investment journey in the last 12–36 months.

Short-term capital gains from equities are taxed at 15% while long-term capital gains over Rs 1 lakh are taxed at 10%. The government levies a 0.1% STT on each equity sale or purchase transactions on exchanges. Short-term capital gains on all other assets are taxed as per an individual’s income tax slab, while long-term capital gains are taxed at 20% with indexation benefit.

3. PLI schemes for extended sectors

The government will also look to come out with aggressive policies to emerge as a viable option for foreign firms exiting China. To bolster the theme the Indian government will look to building and strengthening India’s supply chain capacity, and most importantly, simplify legislations supported by liberal tax compliance regime. Production linked incentive (PLI) scheme details including investment and production thresholds for the extended sectors are awaited.

4. Ease of doing business 

The Government should consider curtailing the scope of transactions covered under TDS compliances, relaxations to non-resident taxpayers in return filing compliances where taxes have been appropriately withheld and provide clarifications on certain vexed issues particularly on the new charge of Equalisation levy and TDS/TCS provisions on e-commerce and also abolish applicability of Income Computation and Disclosure Standards. The government should expedite and bring more clarity on PLI, PMP and FTP in the Union Budget. 

5. More thrust to farmers  

The budget should go a long way in doubling farmers' income by addressing incentives for the fertilizers, more thrust on irrigation, food processing, logistics, and most importantly on the research & development. The key expectations of farmers are export curbs such as the imposition of minimum export price, a quantitative limit on shipment, export duty, and an outright ban tend to negatively impact farmers’ incomes.