When the new tax regime was first introduced four years ago, 72-year-old Sridhara was delighted. “Not only did my tax liability come down significantly, but I no longer had to lock up my money in tax-saving instruments,” says the Bengaluru-based retired PSU banker. This year’s Budget has made things even better for him. The increase in the standard deduction and change in the tax slab structure under the new tax regime will cut his tax liability by more than Rs.15,000. “The government’s efforts to simplify personal income tax and bring more people under its ambit is commendable. This is being done step by step through the new tax regime. I will give this Budget nine out of 10,” he says.

Sridhara, retired PSU banker, 72 years, Bengaluru

HOW HE RATES THE BUDGET: 9/10

He opted for the new tax regime two years ago because it lowered his tax outgo and didn’t force him to lock up money in tax-saving instruments. This year’s Budget has made things even better by increasing the standard deduction and widening the tax slabs. With a pension and interest income of Rs.14.77 lakh, he stands to save Rs.15,600 in tax under the new regime.

Sridhara: “I have made bumper savings in tax under the new regime. Even though my tax has been reduced by only 4%, I am happy with this year’s Budget.”

Not everyone shares his exuberance, though. Many investors are crestfallen following the Budget proposal to remove the indexation benefit available on real estate and gold. Indexation takes into account the inflation during the holding period and, accordingly, adjusts the acquisition price upwards. This can be very beneficial during periods of high inflation as it helps reduce the tax payable on capital gains from the sale of the asset.

For instance, between 2009 and 2015, the high consumer inflation offered a tax bonanza to investors. If an investor had purchased a property for Rs.1 crore in 2009-10 and had sold it five years later in 2014-15 for Rs.1.6 crore, he would have earned compounded annual returns of 10%. Though his investment would have made a gain of Rs.60 lakh, he wouldn’t have had to pay tax. This is because indexation would have pushed up the purchase cost to Rs.1.62 crore.

The removal of indexation will deny this opportunity to investors in property. “There is a considerable difference in tax due to the removal of indexation,” says Noida-based businessman Alok Hada. Though the Budget has proposed to reduce the tax from 20% to 12.5%, investors planning to sell property or gold will now have to pay tax on the entire capital gain from the transaction. “Buying property as an investment may no longer be viable,” says Hada. His rating for the Budget: six out of 10.

Alok and Priyanka Hada, businesspersons, 54 and 48 years, Noida

HOW THEY RATE THE BUDGET: 6/10

Note: The Hadas bought a flat for Rs.1.25 crore in February 2012. They had planned to sell it this year for an upgrade. The going price is around Rs.2.5 crore. The indexation benefit would have raised the acquisition cost to Rs.2.26 crore, reducing the LTCG to Rs.24 lakh and the 20% tax to Rs.4.8 lakh. However, the removal of indexation means they will have to pay around Rs.15.6 lakh tax or 12.5% tax on Rs.1.25 crore.

Alok and Priyanka Hada: “There is a considerable difference in tax due to the removal of indexation. Investment in property may no longer be viable.”

The real estate industry is understandably upset with the proposal. They feel real estate investments have been given an unfair deal. Akhil Saraf, Founder and CEO of Reloy, a company that provides digital support to real estate firms, points out that investments in property already pay a high tax by way of stamp duty on purchases. “If we are treating real estate investments at par with equities, it invites serious rethinking in terms of the stamp duty on resale,” he says.

Stamp duty is 5-6% of the property value as opposed to 0.1% STT on stock market transactions. It is a big money spinner for state governments. According to a study by Motilal Oswal Financial Services, the average revenue collection from stamp duty and registration charges across India was Rs.15,807 crore per month in 2022-23. An estimated Rs.1,80,000 crore was earned from stamp duty in the year. This amount has risen further since then. In 2023-24, the Maharashtra government alone raked in Rs.50,400 crore from stamp duty on property registrations. Karnataka earned Rs.15,938 crore, while Gujarat saw Rs.13,731 crore flow into the state government coffers.

HOW TO AVOID CAPITAL GAINS TAX

Though the indexation benefit has been removed, there are other ways in which investors in property can avoid capital gains tax. If the capital gains from the sale of property are used to buy another house, the gains are exempt from tax under Section 54. The new property should be purchased one year before or within two years of the sale, or constructed within three years of the sale.

However, this amount has to be reinvested within the specified time to be eligible for the exemption. If the investor is unable to invest the capital gains in the specified avenues, the money can be parked in the Capital Gains Account Scheme (CGAS).

The investor can also reinvest profits from the sale in capital gains bonds issued by NHAI or REC within six months of the sale. These bonds have a lock-in period of five years and the maximum investment allowed is Rs.50 lakh in a financial year. Besides this, gains from property transactions can be set off against capital losses from other assets, such as gold, stocks and mutual funds. “However, long-term capital losses can only be set off against long-term capital gains, though short-term losses can be set off against both long-term and short-term gains,” says Nishant Khemani, Managing Partner of the Delhi-based Saturn Consulting Group.

Subhrodeep Mukherjee, salaried professional, 39 years, NCR

HOW HE RATES THE BUDGET: 7/10

He started SIPs in equity mutual funds about 6-7 years ago and has built a corpus of around Rs.12 lakh. This is a long-term investment and he intends to hold it for at least 5-6 years. Assuming a 12% return and monthly SIPs of around Rs.40,000, his corpus will be close to Rs.65 lakh in six years. Of this, the gains will be almost Rs.30 lakh.

Subhrodeep Mukherjee: “I’m not affected by the increase in the LTCG tax rate because I haven’t redeemed till now. However, it will take a substantial chunk out of my returns when I sell in the next five years.”

HIGHER TAX ON EQUITY GAINS

Investors in equities and mutual funds are also unhappy with the Budget proposals. The increase in tax on short-term capital gains (STCG) and long-term capital gains (LTCG) has upset their calculations. Rugved Navandar, a Mumbai-based data analyst who dabbles in stocks and derivatives, is worried about the higher tax on short-term gains. With STCG proposed to be taxed at 20% instead of 15%, Navandar expects his income from day trading and short-term bets to be lower.

Rugved Navandar, data analyst, 27 years, Mumbai

HOW HE RATES THE BUDGET: 3/10

An avid trader in stocks and derivatives, he has invested close to Rs.58 lakh in the markets. Last year, his income was Rs.40 lakh and he paid around Rs.10 lakh in tax. This year, due to the hike in tax rate for both long-term and short-term gains, his tax will go up.

Rugved Navandar:“My short-term trading income will be hit by the hike in tax rates. Also, the higher STT on futures and options deals a big blow to retail traders.”

Some even believe that a higher tax on STCG from stocks will push investors into the futures and options market. Losses in stocks can be set off against other gains, but losses in futures and options can be set off against profits from regular business. The Budget has also proposed to hike the STT payable on futures and options trading. This is why Mumbai-based businessman Zuber Khan (see picture), who is also an active options trader, has given two out of 10 to the Budget. Navandar is a little more generous with three out of 10.

Zuber Khan, businessman, 26 years, Mumbai

HOW HE RATES THE BUDGET: 2/10

He has invested in stocks and bonds but actively trades in options. Being a short-term investor, he is not too bothered by the hike in Lthe TCG tax rate, but the STCG tax hike has upset his calculations. He is also worried about the hike in STT on derivative trading.

Zuber Khan: “The hike in STCG tax will push investors towards derivatives because any loss in futures and options can be set off against profits from regular business.”

SMALL INVESTORS WILL GAIN

While the higher tax on LTCG will hit investors who have large equity portfolios, small investors may actually gain from the proposed changes, believe financial advisers. “If the LTCG from stocks and equity funds is up to Rs.2 lakh in a financial year, your tax liability will now be lower because the exemption threshold has been hiked from Rs1 lakh to Rs1.25 lakh in a year,” says Raj Khosla, Managing Director of MyMoneyMantra.

One way in which investors can avoid the tax is by harvesting tax-free long-term gains of up to Rs.1.25 lakh every financial year. Sell some of your stocks and equity funds purchased more than a year ago so that the gains are within the Rs.1.25 lakh tax-free threshold. The same securities and funds can be repurchased immediately afterward. This simple exercise will not only help you pocket tax-free long-term capital gains but also reset the purchase price of the securities at a higher level, thus reducing the tax when you sell these at a future date. Do this even if you intend to hold your equity investments for the long term.

However, investors should ensure that they maintain the equity allocation in their portfolios when they harvest LTCG on equities. “Selling equity investments and not repurchasing these might change your asset mix and leave you with a lower than desired equity exposure,” warns Khosla.

NO WAIT FOR TCS REFUND

The Budget is good news for another segment of taxpayers. The parents who are sending money to their children studying abroad were subjected to a very high tax collected at source (TCS). The TCS was as high as 20% of the amount sent abroad if it exceeded Rs.7 lakh in a financial year.

Though the TCS was refunded when the taxpayer filed his tax return, he had to wait for nearly 10-12 months before he got the money back. The Budget has proposed that this TCS be adjusted against one’s salary TDS. This is why Jaipur-based college professor Shefali Gautam gives the Budget eight out of 10.

Shefali Gautam, academician, 54 years, Jaipur

HOW SHE RATES THE BUDGET: 8/10

The high TCS rate on foreign remittances was a sore point for her. Every time she sent money to her daughter, who is studying in the UK, she ended up paying a high TCS. The Budget has given her relief by allowing the salary TDS to be adjusted against the TCS.

Shefali Gautam: “I had to wait up to 10-12 months to get back the TCS paid on foreign remittances to
my daughter. The Budget has relieved me of this pain point."