The Indian stock markets saw a significant drop on Tuesday after Finance Minister Nirmala Sitharaman announced changes to the Securities Transaction Tax (STT) and capital gains tax in the budget. The Nifty 50 index fell by 353.10 points (1.44%) to close at 24,156.15, while the BSE Sensex dropped by 1,058.98 points (1.32%) to settle at 79,443.10. Additionally, the Nifty Midcap index also experienced a substantial decline, dropping over 3% or 1,891.32 points to 54,733.50.

Furthermore, the Indian rupee weakened against the US dollar, hitting a record low of 83.69. Throughout the day, the market fluctuated as investors processed the budget proposals for the fiscal year 2024-25.

Finance Minister Sitharaman announced that short-term capital gains on certain assets will now be taxed at 20%, aiming to simplify the existing tax system, which has been a point of contention for investors. Additionally, long-term capital gains on all financial and non-financial assets will be taxed at 12.5%. The government also set the exemption limit for capital gains at Rs 1.25 lakh per year, providing relief to individual investors while boosting tax revenues.

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Moreover, the STT on derivatives has been revised to 0.02%, impacting trading volumes and costs in the derivatives market.

These policy changes, along with broader market conditions, have led to cautious investor sentiment. Stakeholders are closely monitoring the fiscal landscape, emphasizing the significance of investor perception in shaping market movements.

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