On July 23, 2024, Finance Minister Nirmala Sitharaman gave a presentation on the Interim Union Budget for FY 2024–2025. The income tax slabs and other financial domains did not undergo any notable modifications in the Banking Sector. Experts and mutual fund advisors suggest sector-specific mutual funds after budget allocations, taking into account factors including infrastructure, banking and financial services, and consumption. To comprehend the success of these industries and investment methods for sectoral funds, ETMutualFunds conferred with specialists.
Union Budget Highlights in the Finance Sector
- By integrating retail schemes and ETFs with designated funds and offering tax exemptions for them in the IFSC, the Union Budget 2024–25 seeks to simplify tax consequences for non-residents.
- Additionally, it excludes from the IFSC a few Core Settlement Guarantee Fund revenues. The taxation of capital gains has been restructured, with short-term profits being subject to 20% tax and long-term capital gains on listed stocks over Rs. 1.25 lakh subject to 12.5% tax.
- Foreign corporations now pay only 35 percent corporate tax instead of 40 per cent. To increase the effectiveness of addressing debt-related issues, debt recovery tribunals are being developed and reinforced.
- The budget intends to grow India Post Payment Bank by adding more than 100 new branches in the northeast and allotting Rs. 1.5 lakh crore to states as interest-free long-term loans. A ‘variable capital firm structure’, the reinforcement and expansion of debt recovery tribunals, the streamlining of FDI and OI laws and regulations, and the prioritisation of rationalising tax consequences for non-residents are some of the significant improvements that have been suggested for the financial services industry.
Sectoral Mutual Funds Insight
The banking and financial services industry’s mutual funds produced an average return of 23.38% over the previous year, with the Quant BFSI Fund providing the best return at 62.16%. The Nippon India Consumption Fund has provided the greatest return of 41.91% among consumption and infrastructure sector funds, which have produced average returns of 36.03% and 65.53%, respectively.
Effects on the Banking Sector
- The banking industry is doing better; in September 2023, scheduled commercial banks had a capital-to-risk-weighted assets ratio of 16.8% and a common equity tier 1 ratio of 13.7%.
- Their ratios for net and gross non-performing assets, however, dropped to levels not seen in some years. Profitability has increased because of strong interest margins and fewer impairments; return on equity and return on assets have reached all-time highs.
- It is unclear whether the government would finalise several anticipated bank privatisations in this budget or announce any significant ones. Uncertainty is caused for stakeholders by regulations that are enacted without official consultation.
- For example, the RBI has instructed banks and NBFCs to limit evergreening through Alternative Investment Funds (AIFs).
- A thriving secondary market for stressed assets depends on the Indian Bank of Commodities (IBC), but there is a need to increase the number of potential resolution applicants.
- The government’s expenditure priorities in the forthcoming budget may be a portent of changes to come, including measures to stabilise the financial regulatory framework and expand the stressed assets market.
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Conclusion
The objective of the Union Budget 2024–2025 is to provide tax exemptions and integrate retail schemes and ETFs with designated funds to streamline the tax implications for non-residents. Additionally, the budget restructures the capital gains tax system, lowering the long-term capital gains on listed equities to 12.5% and the short-term profits to 20%. With the addition of new branches and the allocation of Rs. 1.5 lakh crore to states for long-term, interest-free loans, the budget seeks to expand India Post Payment Bank. Over the preceding year, sectoral mutual funds had average returns of 23.38%.
