Budget 2025: What Investors and Traders Expect for Stock Market Relief and Tax Reforms

February 1, 2025 – As Union Budget 2025 approaches, investors and traders are keenly awaiting announcements that could shape the outlook for the stock market. With Finance Minister Nirmala Sitharaman set to present the budget on February 1, market participants are hoping for tax reforms and measures that can boost disposable income, encourage investment, and support economic growth.

Top Investor and Trader Expectations for Budget 2025:

1. Higher Tax Slab Threshold: One of the most anticipated proposals is the potential shift in the 30% tax bracket. Currently, individuals earning over Rs 15 lakh fall into this category. Parijat Garg, a digital lending consultant from Pune, suggests that this rate should only apply to those earning above Rs 20 lakh. A change like this could make the new tax regime more attractive to higher-income earners, encouraging them to invest more actively in the markets.
2. Increased Deductions Under Section 80C: Many taxpayers and investors are hoping for an increase in the deduction limit under Section 80C of the Income Tax Act. The current limit of Rs 1.5 lakh has remained unchanged since FY 2014-15. Khyati Amlani, a corporate legal counsel in Mumbai, believes that doubling the limit to Rs 3 lakh would encourage more disciplined savings and investment, benefiting both individual taxpayers and the market in the long run.
3. Tax Treatment of Fixed Deposit (FD) Interest: Parijat Garg has also called for a reduction in the tax burden on interest income from FDs. Specifically, he proposes taxing long-term FD interest (over 36 months) at the 12.5% Long-Term Capital Gains (LTCG) rate, in line with other investment asset classes. This change would enhance the appeal of FDs as an investment avenue for individuals seeking safer, tax-efficient options for portfolio diversification.
4. Higher Exemption Limit for the Old Tax Regime: There is growing demand for an increase in the basic exemption limit under the old tax regime, which currently stands at Rs 2.5 lakh. Tejash Gandhi, a manager in Mumbai, believes that raising this limit to Rs 5 lakh would provide much-needed relief to lower-income groups, giving them more disposable income to channel into investments, potentially driving retail investor participation in the stock market.
5. Capital Gains Tax Rationalization: Investors and traders are pushing for a revision of capital gains tax to promote long-term investment. SR Patnaik, Partner at Cyril Amarchand Mangaldas, calls for a simplified capital gains tax structure and reinstating indexation benefits for debt funds. Khyati Amlani also advocates for reducing Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG) tax rates across asset classes to boost investment sentiment.
6. Incentives for Skill Development: Parijat Garg suggests the introduction of a tax deduction of up to Rs 50,000 for individuals investing in upskilling programs. This measure could help middle-class professionals enhance their skill sets, opening up new employment opportunities and potentially contributing to increased market participation as well as economic productivity.
7. Enhanced Housing Benefits: The housing sector remains a crucial area for tax relief. Ritika Nayyar, Partner at Singhania & Co, advocates for raising the interest deduction cap on housing loans from Rs 2 lakh to Rs 3 lakh. This would provide additional support for first-time homebuyers, reduce the financial strain on homeowners, and indirectly boost real estate investment—an area closely tied to the stock market’s performance.

Market Outlook:

Ahead of Budget 2025, there is an undercurrent of optimism among investors and traders, who are looking to the government’s fiscal policies to provide the necessary framework for economic recovery. While global market dynamics and domestic growth factors will play key roles in shaping the stock market’s direction, tax relief and incentives for savings and investment could prove to be important catalysts for market sentiment and long-term growth.

As the budget is set to address the pressing needs of taxpayers, the focus on providing tax relief and stimulating investment could offer fresh opportunities for both retail investors and institutional traders. Analysts will be keeping a close eye on how the government balances economic growth with fiscal responsibility, while also ensuring that tax policies encourage a healthy investment environment.

Conclusion:

With the Union Budget just around the corner, all eyes are on Finance Minister Nirmala Sitharaman as she outlines the government’s fiscal agenda for 2025. Investors and traders alike are hoping for a package of reforms that can foster economic stability, enhance market participation, and provide targeted support for key sectors, including financial services, real estate, and education. The next few days will be crucial in determining whether the Budget delivers the right incentives to drive growth and confidence in the stock market.