ABSTRACT
The writer discusses “A Critical Analysis of Increase in Long Term Capital Gains (LTCG) Tax and Short Term Capital Gains (STCG) Tax Related to Share: An Analysis of Budget 2024-2025” in order to analyze the changes to capital gains taxation proposed in Indian Union Budget for the fiscal year 2024-2025. This analysis is especially pertinent with respect to and in light of the significant alterations to the most important tax structure of the economy, which shall determine the way for investment decisions, stability of the market, and economic growth for the nation.The things set out in Budget 2024-25 stipulate a flat rate of 12.5% uniform tax payable on long-term capital gain on all asset classes, quite an upward revision all the way from 10% applicable to listed shares and 20% across other assets endowed with the benefit of indexation. In other words, short-term capital gains per se on the sale of certain financial assets, such as shares and equity-related mutual funds, will now attract a higher rate of tax: from 15% now to 20%. This investigation will consider both quantitative analysis of market trends before and after Budget intervention with qualitative interviews conducted with financial experts and investors. This dual approach will afford a well-rounded understanding of the implications of these tax changes.A further examination of how the taxation of short-term gains at higher rates might minimize speculative trading while simultaneously pushing investors towards long-term investment strategies. Insights arising out of uniform taxation that makes compliance easier for investors, which may provide bread and butter for increased players in equity markets. An assessment checks if higher exemption limit alone (from ₹1 lakh to ₹1.25 lakh) is adequate to nullify the effect of higher tax rates leveling up from middle-class to those in semi-middle-class investors.The increase in LTCG and STCG taxes is part of a wider set of economic reforms aiming to stabilize financial markets and promote sustainable investment practices. The government may be attempting to reduce volatility on the equity markets, thereby creating a more mature investment environment, as reflected in its decision of imposing higher taxes on short-term gains. Further, the scrapping of indexation may do away with complications in tax calculations, even though it raises questions about inflation-adjusted returns for investors.In short, this research aims to provide a full, critical analysis of the recently implemented changes in capital gains taxation as enunciated in Budget 2024-25. The study shall also analyze investors’ immediate and long-term implications for market stability, according to the moves towards capital gains taxation. The results will be useful for policymakers and investors operating in this new fiscal landscape whose aim ultimately is to provide a better understanding of how taxation impacts decision-making on investments in equity markets.
WHAT IS SHARE?
A share is a unit of ownership in a company, also commonly known as stocks or equities, and consideredby some companies as financial assets. When you purchase shares, you buy a part of the company and become a shareholder. The total number of shares issued by a company is called its “capital stock” or “equity. The terms “shares” and “stocks” are often used interchangeably, but “stock” is the financial instrument a company issues, and a “share” is a single instance of that financial instrument. Companies issue shares to raise capital, which is then sold to investors, often investment banks or brokers, who then sell the shares to other investors. Shareholder ownership refers to the individuals or organizations that hold partial ownership in a company through the stock they hold. These stocks act as certificates representing a proportional claim to the company’s assets, profits, and voting rights. Thus, with every unit of stock, one becomes a part owner of the company; hence, the more stock one owns, the larger the percentage of ownership one has. So, how much control does the majority of the shares give one? It gives them control over the company, molding strategic decisions and intentions regarding board members’ appointments.The term ‘stocks’ and ‘shares’ are often used synonymously; however, the truth is that they denote different things. Stock is a representation of partial ownership in one or more corporations, while share denotes the portion of ownership in a single company. A share represents the smallest unit of issuance of a company’s stock; each unit of stock is itself a share, and shares out of stock are equivalent to pieces of ownership of the company.So, now let’s see what different types of share are found in the stock market. Generally speaking, ownership interest in a company shares are representatives. However, there are different varieties of shares available whereby each is a bit different in nature covering certain aspects for an investor.The types of share are common share, preference share, treasury stock, employee stock and options, restricted stock unit,ADR AND GDR. Common equity is the most prominent kind of equity that most companies issue. Common stockholders are essentially the rightful owners of the company and have voting rights in significant company matters, such as electing a board of directors or approving major decisions affecting the company. They hold a residual claim on the company’s assets and earnings, meaning they will be entitled to dividends if declared, and to share in whatever money is left over once all other obligations have been gathered up, those obligations including paying any debts. Comparatively, common stock is riskier than other securities but can, potentially, return even more. Preferred stock is a hybrid security, possessing characteristics of equity and debt. Preferred share owners receive preferential treatment over common stockholders with respect to dividends, which are usually predetermined. However, they usually lack the ability to pass or block corporate decisions. Preferred stockholders, in the event of liquidation, possess a superior claim over the assets of the company as compared to common shareholders. Generally, preferred stock is considered less risky than common stock due to its dividend preference and liquidation priority.Treasury stock refers to shares that were previously issued by the company but have been repurchased in the open market.