Budget 2024 Impact on Real Estate, Stock Market, Mobile Phones, Gold Rate & Auto Sector

The Union Budget is a country's economic roadmap that leads economic activities for a particular year. In addition to stating the estimated receipts and expenditures of the Government for that specific year, the Government also makes other announcements that impact different sectors of our economy. Here, we will discuss the announcements of the Union Budget 2024 that have affected the significant sectors of the Indian economy. 

Budget 2024 impact on Stock Market

After the announcements of the Union Budget 2024, the Indian stock markets started to decline significantly as the Government proposed to raise the tax on capital gains and on trading derivatives. The NSE Nifty 50 and S&P BSE Sensex dropped about 1% each. The Indian rupee also dropped to a record low against the US dollar to 83.69.

In the Union Budget 2024, the Central Government increased the capital gain taxes for the financial year 2024-25. Short-term gains on financial assets will now be taxed at 20%, compared with 15% earlier, while long-term gains on all assets face a 12.5% tax, and indexation benefit will not be there. However, the exemption limit for long-term capital gains has been increased to Rs.1.25 lakh from Rs.1 lakh per year. 

The Finance Minister hiked securities transaction tax (STT) on futures and options of securities, which is proposed to be increased to 0.02 per cent and 0.01 per cent. In her budget speech, the finance minister also proposed to tax income received on the buyback of shares in the hands of recipients. The FM did not provide any target for disinvestment for the current financial year, which was also disliked by the markets. Disinvestment candidates like Mazagon Dock Shipbuilders, GRSE, IDBI Bank, Rashtriya Chemicals and more tumbled up to 8 per cent.

Market analysts say the Government's decision to hike the LTCG tax will discourage savings and investments. Gaurav Bora of Laksh Financial Solutions told The Indian Express, "Just when the stock market has been having a good run for a long time, the news dampened the spirits… It is an unnecessary move."

Budget 2024 impact on Real estate

Finance Minister Nirmala Sitharaman has made various announcements, the sector welcomes some, and some are receiving mixed responses. In this Union Budget, three crore additional houses under Pradhan Mantri Awas Yojana (PMAY) have been announced for urban areas. With an investment of Rs.10 lakh crore, housing needs of 1 crore urban poor and middle class families will be addressed. It is a significant move that will support the affordable housing segment. It will also boost the demand for housing materials and workforce on construction sites. Additionally, developing industrial parks, corridors, infrastructure, and vegetable supply chains near urban consumption centres will offer significant opportunities for real estate stakeholders.

Now, address an announcement that has become the reason for worry among stakeholders in real estate. The central Government has announced a significant change in the tax treatment of immovable properties, clarifying that the indexation benefit will be removed for properties bought after 2001 while retaining it for those purchased before that year. This adjustment accompanies a proposal to reduce the long-term capital gains (LTCG) tax on real estate from 20% to 12.5%, aimed at simplifying tax calculations. Experts say this shift could lead to a heavier tax burden for property sellers. They are saying that this could hinder the growth of the real estate sector.

For example, If Rahul purchased a property for Rs 30 lakh in the financial year 2002-2003 and sold it for Rs 1.5 crore in the financial year 2024-2025, the result was Rs.1.2 crore as a capital gain. With the new rule, Rahul would have to pay tax on Rs.1.2 crore, which would be Rs. 15,00,000 (12.5% on LTCG). But if we calculate the tax liability with the older rule, 20% adjusted inflation, the calculation would look like this; 

Indexed purchase value = Purchase value * (Cost inflation index for the year of sale/ Cost inflation index for the year of purchase)

Indexed purchase value = Rs 3000000 * (363/109)

= 99,90,000, almost Rs.1 crore

Long term capital gain = Sale value – Indexed purchase value

LTCG = Rs 1,50,00000 – Rs 10000000

= 50,00,000

So the tax now would be 20% of Rs 50,00,000 = Rs 10,00,000. It is 50% lower than the previous calculation, which was Rs. 15,00,000. You would have had to pay without the indexation benefit. The new rule could benefit the seller in a case when he gets the price appreciation of almost 8 times. So, this new tax could prevent upcoming investors from investing in real estate, especially those who finance their real estate investments with lenders. 

Budget 2024 impact on Mobile Phones 

To encourage the mobile phone industry, the Government has provided some relief by reducing the custom duty to 15% from 20% on cellular mobile phones, chargers/adapters, and printed circuit board assemblies. The mobile phone industry welcomed this announcement, but the cheering was less loud than expected.

According to Economic Times, Muralikrishnan B, Xiaomi India's President, said we welcome this decision. Xiaomi India has been manufacturing almost 100% of its smartphones locally. We strongly emphasise sourcing components like PCBA, charging cables, camera modules, and mechanics.

However, some analysts say that the recent decision to reduce the customer duty of BCD, chargers, and PCBA will not have a huge impact on fully Indian-manufactured smartphones. Mobile manufacturers who do not set up their manufacturing centres here and import complete build units (CBU) will benefit from this decision, like Apple.  

Imported smartphones attract 22% custom duty, and applied custom duty will be 16.5% after this cut. Buyers in India could enjoy imported smartphones at a lower price if manufacturers pass on this benefit to customers. Notably, India imports almost 1 billion US dollars of high-end smartphones in a year. This decision could also hamper the smuggling of costly smartphones, which exists due to high custom duty on these phones.  

Budget 2024 impact on Gold 

With the Union Budget 2024, the Government fulfilled the long-pending demand of the gems and gold industry by reducing the custom duty on gold and silver finds, and gold and silver bars were cut from 15% to 6%. For gold and silver dore, the duty was reduced from 14.35% to 5.35%. Following the announcement, the price of gold fell to nearly Rs.70,000 from Rs.74000.

Gold has interesting dynamics, when price drops demand increases, and when demand increases price follows the trend, that is what the market has witnessed after the reduction decision. Jewellery stocks surged up to 8% expecting a huge demand after the announcement. Shares of jewellery brands like Kalyan Jewellers India, Motisons, RBZ Jewellers, PC Jeweller hit the upper circuit. 

However, this decision could negatively impact Gold bond returns. Sovereign gold bond prices are based on the prevailing gold prices, which have been impacted by the cut in custom duty. The yield of older series gold bonds, which are nearing redemption, could also be impacted. Since 23rd July, prices of gold bonds have dropped almost 10%, but this drop can be recovered by the upcoming festive season.  

The Government has also changed the tax rules on capital gains from gold. Tax is based on Long Term Capital Gains (LTCG) and Short Term Capital Gains (STCG). The holding period for physical gold is now 24 months down from 36 months. In case of STCG the rule is the same as earlier, if you sell within 24 months, the gains will be taxed as per the investor's income tax slab.

But, if you sold it after 24 months, the gains will be taxed at a flat 12.5%, which earlier was 20% with indexation benefits.

Removing indexation benefits could hamper investors' returns in case of low annual appreciation. In the current scenario, an investor could only benefit from the recent change if his/her gold gets the annual appreciation of more than 12%. I have given the example of indexation calculation above in the Real estate section to help you understand the difference in applicable tax. 

Budget 2024 impact on Auto Sector 

Union Budget 2024 did not have anything which could directly impact the auto industry, but some of Finance Minister Nirmala Sitharaman announcements were related to the auto sector. The Centre Government has reduced the customs duties on 25 minerals, and lithium is one of them; it is used in making EV batteries. This decision will lower the prices of Electric vehicles and make them more affordable for buyers. It could be seen as an aligned decision with the Indian Government's ambitious EV adoption target to make 30% of the total sales of EVs by 2030. 

Conclusion 

The Union Budget 2024, with its various announcements, brings both opportunities and challenges for different sectors of the Indian economy. The substantial allocation for housing under PMAY is a positive step toward addressing urban housing needs and stimulating the real estate sector. However, changes in the tax treatment of immovable properties could pose challenges for property sellers and potentially hinder sector growth. The reduction in custom duties for mobile phones and gold has been well-received, benefiting consumers and industry stakeholders alike. On the other hand, the increase in capital gains taxes and securities transaction tax has dampened market sentiment, affecting stock market performance and investor confidence.

Overall, while the budget aims to stimulate economic activity and support various sectors, it is crucial for stakeholders to adapt to the new policies and leverage the opportunities presented. By doing so, they can mitigate potential challenges and contribute to sustainable growth. The mixed reactions from different sectors highlight the need for continuous dialogue between the government and industry players to ensure that policies are fine-tuned to achieve the desired economic outcomes.

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