Budget 2025: How should equity traders asses FM’s income tax rebates? Experts weigh in

The Union Budget 2025 introduced a series of direct tax measures aimed at making the new tax regime more attractive for resident taxpayers. One of the key highlights was the increase in the income tax exemption limit to ₹12 lakh, surpassing market expectations of ₹10 lakh.

While this move is set to enhance disposable incomes and fuel consumption, equity traders are left out of the benefits.

Mihir Ashok Tanna, Associate Director (Direct Taxes) at S K Patodia & Associates LLP, noted, “Direct Tax proposal in the budget continued to make the new tax regime more attractive for resident taxpayers except for equity traders who will not benefit from rebates on special rate income which is the subject matter of litigation and recently discussed in SLP filed before Hon’ble SC.”

Meanwhile, Namrata Mittal, Chief Economist, SBI Mutual Fund also stated that the income tax structure has been revised in such a way that income below ₹12 lakh per annum will be taxed at nil (vs. ₹7 lakh previously). The tax structures have also been revised in a way that individuals with income above ₹12 lakh see a lower annual tax incidence ranging from an annual savings of ₹80,000 to ₹1.1 lakh per person. 

“This is expected to result in an aggregate tax saving of ₹1.1 trillion (0.3 per cent of GDP) with most of the benefits accruing to households with income ranging from ₹10-50 lakhs, creating a positive impetus for discretionary consumption demand,” Mittal said.

Mittal added that while it helps the middle class, the market’s focus would be more on potential RBI actions going forward. “While the possibility of a repo rate reduction would be debated, the sequencing of the same would be subjective. Any rate actions are likely to remain ineffective if liquidity conditions remain tight and persistent pressures on the currency continue,” he observed.

Tax Litigation and Compliance Measures

The government has taken steps to reduce tax disputes, including extending the Vivad Se Vishwas Scheme 2024 and raising the monetary thresholds for filing tax dispute appeals by the tax department. This has led to a decline in pending tax litigations.

To further encourage tax compliance, the time limit for filing updated tax returns has been extended to four years. Tanna explained that this move provides taxpayers a golden opportunity to declare previously undisclosed income or forego questionable deductions, helping them avoid penalties, and litigation costs, and ensure peace of mind.

A notable relief was provided for foreign remittances for education purposes. The Tax Collected at Source (TCS) provision will not apply to remittances funded through loans from specified financial institutions. Tanna remarked that this aligns with the legislature’s intent to improve tax compliance and track overseas fund transfers.

While the tax benefits for individuals are expected to boost consumption, market participants are assessing the budget’s impact from an investment and monetary policy standpoint.

On the other hand, Sunil Damania, Chief Investment Officer at MojoPMS, believes the market has underestimated the ₹1 lakh crore tax rebate announced in the budget. He emphasised that this is not a one-time measure but a recurring relief, which will boost disposable incomes and fuel consumption over the long term. According to Damania, this budget presents a well-balanced approach, combining capital expenditure and consumption to drive economic growth.

Overall, equity traders remain excluded from tax reliefs on special rate income, a concern that remains under legal scrutiny. While tax cuts may stimulate discretionary consumption, market attention will now turn to the RBI’s monetary policy actions and economic growth trajectory. With tax reforms expected to enhance compliance and reduce disputes, the government has taken a significant step toward modernizing India’s tax framework.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.