The Indian equity markets experienced a sharp sell-off on Sunday as the Union Budget proposals triggered a downward spiral in major indices. 94.45. Although the market opened in the green, it reversed gains rapidly as Finance Minister Nirmala Sitharaman detailed tax-related changes during her budget speech.
Significant Increase in Securities Transaction Tax (STT)
The primary catalyst for the market crash was the announcement of an increase in the Securities Transaction Tax (STT) on Futures and Options (F&O) trading. 05%. 15%. Market analysts state that this move Notably raises the cost of transaction for derivative traders, leading to an immediate sell-off by institutional and retail participants.
No Relief in Long Term Capital Gains (LTCG) Tax
Another major factor contributing to the market's decline was the absence of any relief in the Long Term Capital Gains (LTCG) tax structure, while according to market experts, investors were anticipating a reduction in tax rates or a revision in the holding period to boost investment sentiment. 5% tax on LTCG for listed equity shares and mutual funds. The lack of any concession in this regard disappointed market participants, prompting them to liquidate positions and withdraw capital from the equity segment.
Expert Insights on Market Volatility
Market expert Kunal Saraogi noted that the budget's tax-related announcements were the two main reasons behind the market crash. He highlighted that the hike in STT and the status quo on LTCG tax weighed heavily on investor sentiment. Analysts believe that the increased tax burden could impact market liquidity, particularly in the high-volume derivative segment. As the clarity on these tax proposals emerged during the budget speech, the intensity of the selling pressure increased across various sectors.
Current Capital Gains Tax Framework
Under the existing tax regime, listed equity shares and equity-oriented mutual funds held for more than 12 months are subject to LTCG tax. For gold ETFs and unlisted shares, the holding period for LTCG is 24 months. 5% tax on these gains. Analysts point out that investors were seeking a reduction in this rate to make equity investments more attractive, but the budget's failure to address this demand led to a sharp correction in the indices.
To sum it all up, the trading session on Sunday was dominated by the fiscal policy announcements. The combination of increased transaction costs and the lack of capital gains tax relief resulted in one of the most significant single-day drops in recent months. Analysts suggest that the market will continue to process the long-term implications of these tax changes while monitoring global cues for further direction.