Zero Tax Up to Rs 12 Lakh: Why Are Shares of Finance Companies Rising, and How Will They Benefit?
In the Union Budget 2025, Finance Minister Nirmala Sitharaman made the historic announcement that, under the new tax regime, those making up to Rs 12 lakh a year will no longer be subject to income tax. This step is intended to support the middle class and spur economic growth. In addition to offering taxpayers enormous relief, this important policy change has caused the stock values of finance corporations to rise noticeably. This essay examines how financial firms expect to gain from this tax overhaul and dives into the causes of this market response.
Examining the Tax Reform in More Detail
The income tax exemption threshold under the new tax regime was Rs 7 lakh prior to this declaration. By raising this threshold to Rs 12 lakh in the most recent budget, a sizable portion of the populace would now pay less in taxes. The tax-free threshold rises to Rs 12.75 lakh for salaried individuals who take use of the standard deduction benefit of Rs 75,000. It is expected that this action will raise disposable incomes, which will promote more consumer savings and spending.
Market Reaction: Increase in Shares of Financial Companies
The stock market saw a surge when the budget was announced, especially in industries related to financial services and consumer expenditure. Shares of car and fast-moving consumer goods (FMCG) companies saw notable increases, with Trent and Maruti Suzuki seeing increases of up to 7%.
The stock values of financial institutions, such as banks and non-banking financial corporations (NBFCs), increased as well. There are a number of reasons why the market views finance companies favorably as a result of the tax change.
Zero Tax Up to Rs 12 Lakh
Expected Advantages for Financial Institutions
- A rise in consumer spending that raises the demand for credit It is anticipated that customers will spend more on goods and services as they have greater discretionary income. This increase in consumption frequently calls for more funding, whether in the form of consumer durable loans, credit cards, or personal loans. In order to accommodate this increased demand for credit, banks and NBFCs are well-positioned, which could result in higher loan disbursements and interest income.
- Increase in Home Loans By boosting their purchasing power, the tax change is probably going to make home ownership more affordable to the middle class. Financial companies that provide mortgage products stand to gain if this leads to an increase in demand for housing loans. Further encouraging real estate investment is the government’s decision to permit taxpayers to deduct the yearly worth of two self-occupied properties from their taxes.
- Improved Investment and Savings Options An rise in the tendency to save and invest may occur in tandem with people’s increased discretionary income. By providing a range of savings accounts, fixed deposits, mutual funds, and other investment products designed to meet the demands of a middle class that is increasingly rich, financial firms can profit from this.
- Enhancement of Asset Quality People are likely to have greater cash flows and be better able to pay off their current debts if they have lower tax obligations. Banks’ and NBFCs’ balance sheets may be strengthened if their non-performing assets (NPAs) decrease as a result of this increase in repayment capacity.
- Financial Inclusion Growth More people, particularly those who formerly operated outside of the taxable income brackets, may interact with formal financial systems as a result of the tax reforms. This gives financial firms a chance to grow their clientele by providing specialized financial services and products to recently included demographic groups.
Zero Tax Up to Rs 12 Lakh
Wider Economic Consequences
Raising the income tax exemption threshold is a component of a larger government plan to boost economic expansion by encouraging more investment and consumer expenditure. India’s GDP is heavily reliant on household consumption, which the program seeks to increase by lowering the tax burden on the middle class. Manufacturing, retail, and services are just a few of the industries that stand to gain from the predicted multiplier impact of the expected rise in demand for products and services.
Finance firms are essential to this growth story because they act as intermediaries for investment and lending. They are in a position to profit greatly from the increased economic activity brought about by the tax reforms because of their role in giving consumers and enterprises the financial backing they require.
Zero Tax Up to Rs 12 Lakh
In conclusion
A major policy change with broad ramifications for the Indian economy is the raising of the income tax exemption threshold to Rs 12 lakh. The market’s confidence about the possible advantages for the financial sector is demonstrated by the finance businesses’ stock prices’ instantaneous positive reaction. Finance firms are in a strong position to grow as a result of rising loan demand, better asset quality, and more prospects for financial inclusion as consumers enjoy higher disposable incomes. This mutually reinforcing relationship between tax policy and the performance of the banking sector emphasizes how important fiscal policies are in determining economic results. Budget 2025: Important Points and Consequences
Zero Tax Up to Rs 12 Lakh
Zero Tax Up to Rs 12 Lakh
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Zero Tax Up to Rs 12 Lakh
Zero Tax Up to Rs 12 Lakh
Zero Tax Up to Rs 12 Lakh
Zero Tax Up to Rs 12 Lakh
Zero Tax Up to Rs 12 Lakh
Zero Tax Up to Rs 12 Lakh
Zero Tax Up to Rs 12 Lakh
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