Budget 2024: Mutual Funds to Attract 20% Tax on Short-Term Gains

Budget 2024: Finance Minister Nirmala Sitharaman presented the Union Budget 2024, unveiling significant changes to the tax structure aimed at simplifying the tax system and fostering economic growth. Among the key announcements, the budget introduces a 20% tax on short-term gains from mutual funds, a move that could impact investors and the financial market.

Tax Reforms and New Slabs

The 2024 budget has redefined the income tax slabs, providing relief and clarity to taxpayers:

No tax for income up to ₹3 lakh.
5% tax for income between ₹3 lakh to ₹7 lakh.
10% tax for income between ₹7 lakh to ₹10 lakh.
15% tax for income between ₹10 lakh to ₹12 lakh.
20% tax for income between ₹12 lakh to ₹15 lakh.
30% tax for income above ₹15 lakh.

Additionally, the standard deduction under the new tax regime has been increased from ₹50,000 to ₹75,000, benefiting salaried employees by increasing their disposable income.

Impact on Investments

The introduction of a 20% tax on short-term gains from mutual funds is part of broader changes aimed at aligning tax policies with market realities. Short-term gains, typically profits from assets held for less than a year, will now face this higher tax rate, affecting investors who rely on mutual funds for quick returns.

Furthermore, long-term capital gains on financial and non-financial assets will be taxed at 12.5%, and unlisted bonds, debentures, debt mutual funds, and market-linked debentures will now be taxed at the applicable slab rate. These measures are expected to streamline tax collection and reduce tax evasion.

Encouraging Sustainable Growth

In a move to boost the startup ecosystem, the budget also removes the angel tax for all classes of investors, fostering a more supportive environment for innovation and entrepreneurship.

Finance Minister Sitharaman's budget reflects the government's commitment to creating a balanced economic environment, promoting sustainable growth, and ensuring that tax policies are equitable and efficient. The changes in tax on mutual funds and other financial instruments are designed to support these broader economic goals while encouraging responsible investment practices.