On February 1, 2025, the Indian finance minister Nirmala Sitharaman presented a budget that will be etched in the nation’s history. This year’s budget saw a significant increase in the income tax-free limit, which has been raised directly by ₹5 lakh. Under the new tax regime, individuals can now enjoy an income tax-free limit of ₹12 lakh instead of the previous ₹7 lakh. Additionally, taxpayers will also benefit from a standard deduction of ₹75,000. However, the question arises: what advantages does this budget bring for investors in mutual funds and the stock market?
Impacts of the 2025 Budget on Investors
While Nirmala Sitharaman did not make direct references to stock market and mutual fund investors in her budget speech, the changes regarding Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) are likely to benefit these investors significantly.
Increased TDS Deduction Limit
The 2025 budget proposals indicate that the government has increased the TDS threshold on dividend income from ₹5,000 to ₹10,000 for investments in the stock market. Similarly, the threshold for TDS on Net Asset Value (NAV) units purchased through mutual funds has also seen an increase from ₹5,000 to ₹10,000.
| Income Type | Previous TDS Limit | New TDS Limit |
|---|---|---|
| Stock Market Dividend Income | ₹5,000 | ₹10,000 |
| Mutual Fund NAV Income | ₹5,000 | ₹10,000 |
This change means that investors will now have a reduced tax liability when earning dividends from their investments. For instance, if an investor previously earned ₹5,000 as dividend income, they needed to pay TDS on any income above this amount. Now, that threshold has been raised to ₹10,000, implying that TDS will only be applicable if the total dividend income exceeds ₹10,000 at a rate of 10%.
It is essential to note that the government has solely modified the TDS limits, which does not affect the income tax calculated on your overall income. Investors will still need to pay income tax based on their respective tax slabs for any capital gains earned from stocks or mutual funds.
Capital Gains Rules Remain Unchanged
In this year’s budget, there were no alterations to the rules governing capital gains tax. These regulations remain consistent with those announced in the July 2024 budget, where short-term capital gains (STCG) were set at 15%, and long-term capital gains (LTCG) were reduced from 20% to 12.5%. Notably, the benefits of indexation were eliminated, while capital gains of up to ₹1.25 lakh became tax-free, compared to the previous limit of ₹1 lakh.
Conclusion
Overall, the Budget 2025 brings certain reliefs for investors in the stock market and mutual funds, particularly through the adjustment of TDS limits, which may encourage further investments. Although there are no significant changes in capital gains tax regulations, investors should stay informed and consider these adjustments when planning their financial strategies for the upcoming fiscal year.