The Indian rupee reached a record low against the US dollar on Tuesday, impacted by the government's announcement in the Union Budget to raise the tax rate on capital gains. The rupee fell to 83.69 per dollar, surpassing the previous low of 83.6775 and declining from 83.6275 before the budget was announced.

Finance Minister Nirmala Sitharaman revealed plans to raise the capital gains exemption limit on certain financial assets to ₹1.25 lakh per year for the middle and upper middle class. This announcement led to a drop in local equities, further pressuring the rupee.

capital gains tax
Image Source: Live Bank

Stock Market Reaction to the New Capital Gains Tax Policy

Following the budget announcement, the stock market also saw a decline. Analysts believe this could negatively affect the markets in the short term.

Despite the fall in the rupee and the stock market, Foreign Institutional Investors (FIIs) were net buyers in the capital markets on Monday, purchasing shares worth ₹3,444.06 crore, according to exchange data.

The Economic Survey for 2023-24, presented in Parliament on Monday, projected India’s GDP to grow at 6.5-7% in 2024-25, down from 8.2% in the previous financial year. This projection is slightly lower than the Reserve Bank of India's growth estimate of 7.2%.

The budget announcement and subsequent market reactions highlight the delicate balance between fiscal policy and market stability. The government's move to increase the capital gains tax aims to boost revenue, but it has also led to immediate financial market fluctuations.

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