The Constitution of India mandates the government to present the Union Budget every year, which is normally presented every year on February 1, is referred to as the Annual Financial Statement of estimated receipts and expenditure of Central Government. The Union Budget is an important document that outlines the government’s fiscal policies, plans and programmes, its allocation of financial resources among different regions, sectors, industries, etc, for the upcoming financial year. This year, due to the elections, Final Budget 2024 was presented on July 23, 2024.
Significant Direct Tax
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Proposals
Enhanced Limit of Standard Deduction Under New Regime
The Govt of India intends to have hassle-free filing of tax returns for taxpayers by removing various deductions available to reduce taxable income such as such payments of insurance premia, contributions to Provident Fund, Mediclaim policy, investment in tax saving securities, charitable donations, exemptions for bank interest, etc, with the goal of providing readymade prefilled tax returns with option for modifications.
With this end in view, a new section 115 BAC was inserted in Income tax Act, 1961 with effect from financial year 2020-21, giving option to the tax payer to select the New Scheme (regime) of lower tax rates by forgoing all the deductions which he could claim under Old Scheme (regime) as stated above or stick to Old Scheme of tax rates with deductions.
With effect from April 1, 2024, the government has pushed this scheme more aggressively in modified form by making it more attractive to the taxpayers and not giving any additional benefits to taxpayers who opt for old regime.
Under the new regime, the standard deduction for salaried (includes pension) individuals is increased to Rs 75,000 from Rs 50,000. Similarly, deduction on family pension is increased to Rs 25,000 from Rs 15,000.
Changes in Tax Structure Under the New Regime is as follows:
Income Tax Slabs Tax rate Tax Rate
₹0-3 lakh Nil Nil
₹3-7 lakh 5% 5%
₹7-10 lakh 10% 10%
₹10-12 lakh 15% 15%
₹12-15 lakh 20% 20%
Above ₹15 lakh 30%
Note: As a result of the above changes, a salaried employee in the new tax regime can save up to Rs 17,500 in taxes.
Simplification of Taxation of Capital Gains
For classifying assets into long-term and short-term, there will only be two holding periods: 12 months and 24 months. The 36-month holding period has been removed.
All listed securities with a holding period exceeding 12 months are considered long-term otherwise short-term. The holding period for all other assets is 24 months.
Unlisted bonds and debentures are brought in line with the taxation on debt mutual funds and market-linked debentures. They will attract tax on capital gains at applicable slab rates. (i.e., they will be treated as short-term irrespective of the period of holding.)
The taxation of short-term capital gain for listed equity shares, a unit of an equity-oriented fund, and a unit of a business trust has been increased to 20% from 15%. Other financial and non-financial assets which are held for short-term shall continue to attract the tax at slab rates.
For the benefit of the lower and middle-income classes, the limit on the exemption of long-term Capital Gains on the transfer of equity shares or equity-oriented units or units of Business Trust has increased from Rs 1 lakh to Rs 1.25 lakh per year. However, the rate at which it is taxed has increased from 10% to 12.5%. The exemption limit to Rs 1.25 lakh has been increased for the whole of the year, whereas the tax rate changed on July 23, 2024.
The tax on long-term capital gains on other financial and non-financial assets is reduced from 20% to 12.5%. While on the other hand, the indexation benefit that previously was available on sale of long-term assets, has now been done away with. So, any sale of long term asset made from July 23, 2024, will attract tax rate of 12.5% without indexation benefit.
Individuals/HUF who bought property before July 23, 2024 will have option to opt for either indexed cost with 20% tax or @ 12.5% without indexation whichever beneficial to him. However, it is to be noted that the provision regarding availing the benefit of FMV of asset as on April 1, 2001, as cost while selling the asset, is still available even after the recent changes.
Changes in TDS Rates
Budget 2024 reduced the TDS rates on specified payments to facilitate business and improve taxpayer compliance.
Introduction of TDS on Payments Made to Partners by Firms (Section 194T)
This budget has introduced a new TDS provision for payments made by the partnership firms and LLPs to the partners by way of salary, remuneration, interest, bonus or commission. So, now any payment by a firm of the above nature exceeding Rs. 20,000 shall be subjected to the TDS at the rate of 10% u/s 194T.
Increase in limit for
Partner’s Remuneration
Under Section 40(b), the partner’s limit for remuneration has been increased in the Budget 2024 as follows,
Book Profit Limit
On the first Rs 6,00,000 of book profit or loss Rs 3,00,000 or 90% of the book profit, whichever is higher
On the remaining balance of book-profit 60% of the book-profit
Abolishment of Angel Tax
Angel Tax is a tax levied on companies that issue fresh shares to investors at a price above the company’s Fair Market Value. The excess of the Issue Price over and above the FMV was made taxable u/s 56(2)(viii) as an angel tax in the hands of the Company. This provision is removed. This will benefit the startup ecosystem.
Corporate Taxes on Foreign Companies is reduced from 40% to 35%. Increased Deduction on Employer’s Contribution to Pension Scheme
Section 80CCD provides a deduction for the employer’s contribution to the Pension scheme up to 10%. This is now increased to 14% of the salary of the employee.
Reopening of ITR – Only if the escaped income is Rs 50 lakh or more can an assessment be reopened beyond three years from the end of the assessment year, up to a maximum period of five years from the end of the assessment year. In the case of search cases, the time limit of 10 years is reduced to six years.
Income Tax Appeals – To reduce the number of pending cases, the monetary limits for filing tax dispute appeals in tax tribunals, high courts, and supreme courts have been raised to Rs 60 lakh, Rs 1 crore, and Rs 2 crore.
Vivaad se Vishwas Scheme – This scheme will be reintroduced to facilitate the settlement of income tax disputes and eliminate litigation.
Waiver of small outstanding demands – Small and old outstanding demands upto Rs 25,000 upto 2010-11 and Rs 10,000 from AY 2011-12 to 2015-16 will be waived subject to maximum of Rs 1 lakh as per CBDT Circular.
These proposals will be implemented after assent of the President of India on the Finance Bill.
(The author is a Chartered Accountant by profession)
