Union Budget 2024-25: Income Tax Changes & Updates

Union Budget 2024-25: Income Tax Changes & Updates

The Union Budget 2024-25, presented by Finance Minister Nirmala Sitharaman, prioritises simplifying the tax system and improving taxpayer services. Building on previous efforts to streamline corporate and personal income tax structures, the government aims to reduce complexities further and enhance tax certainty. This focus on simplification comes alongside efforts to boost revenue collection for government development and social welfare programs. This Budget 2024 made some important remarks and measures on Income tax, including a comprehensive review of the Income Tax Act 1961, revised income tax structures, TDS rates, and improved tax administration. In this article, you can find all the changes and updates on Income tax proposed in the Union Budget 2024-25.

Union Budget 2024-25: Highlights on Income Tax

In the following, we have given the key Budget 2024 Highlights on Income Tax:

• The standard deduction for salaried employees under the new tax regime  increased from ₹50,000 to ₹75,000,
• The standard deduction for family pensioners under the new tax regime is increased from ₹15,000 to ₹25,000.
• The income tax rate slab structure for the new tax regime was revised with varying rates.
• STT on selling an option in securities will rise from 0.0625% to 0.1%, while  STT on selling a futures contract will increase from 0.0125% to 0.02% of the contract value.
• Employer NPS deduction increased from 10% to 14% of employee salary.
• A comprehensive review of the Income-tax Act 1961 will be revised within six months.
• Reassessment of ITR will be simplified, including reopenings only allowed beyond 3 years for missed income (over ₹50 lakh).
• Short-term capital gains on some financial assets at 20% and long-term capital gains rationalised and fixed at 12.5%.
• Vivad Se Vishwas Scheme, 2024, will be introduced to reduce appellate backlog and deploy more officers.
• Abolishing the angel tax on all investor classes would boost the startup ecosystem.
• Withdrawal of the 2% equalisation levy.

Changes in Personal Income Tax Rates

In the Union budget 2024 Income tax, the proposed changes to the Personal Income Tax rates under the new tax regime include significant relief for salaried employees and pensioners. Firstly, the standard deduction for salaried employees is set to increase from ₹50,000 to ₹75,000. Additionally, the deduction on family pensions for pensioners is proposed to be raised from ₹15,000 to ₹25,000. Moreover, the deduction allowed to an employer for contributions to a pension scheme under section 80CCD is proposed to increase from 10% to 14% of the employee’s salary. Non-government employees in the new tax regime will also be allowed a deduction of up to 14% of their salary, up from the current 10%

Union Budget 2024 Income Tax Slab

The Finance Minister has revised the income tax slab structure for individuals opting for the new tax regime. Here are the key changes:

Decision on Comprehensive Review of the Income-tax Act, 1961

A comprehensive review of the Income-tax Act of 1961, has been announced to make the Act more concise, lucid, and easier to read and understand. This initiative is expected to reduce disputes and litigation, thereby providing greater tax certainty to taxpayers and decreasing the number of demands entangled in litigation. It is proposed that the review be completed within six months. As a starting point, the Finance Bill introduces simplifications in various areas, including the tax regime for charities, the TDS rate structure, provisions for reassessment and search, and capital gains taxation.

Simplification for Charitable Trusts/ Institutions

The amendments are proposed to simplify the regulatory framework for charitable trusts and institutions by merging two existing exemption schemes. These changes are designed to rationalise the application process and the timelines for registration and approval of various benefits to charitable trusts and institutions.

Increased Capital Gains Tax

The Union Budget 2024 Income tax aims to streamline capital gains taxation, focusing on clarity and rates. Here are the changes that have been made:

• Short-Term Capital Gains: The tax rate on Short Term Capital Gains from specified financial assets has been increased from 15% to 20%.
• Long-Term Capital Gains: The Long Term Capital Gains Tax rate is rationalised and fixed at 12.5% for all type of assets.
• Increased Exemption Limit: For the benefit of lower and middle-income taxpayers, the exemption limit for capital gains on certain listed financial assets has been raised from ₹1 lakh to ₹1.25 lakh per year.
• Holding Period: Listed financial assets held for over a year will be considered long-term. Unlisted financial assets and all non-financial assets will require a holding period of at least two years to qualify for the long-term tax rate.
• Exception: Unlisted bonds, debentures, debt mutual funds, and market-linked debentures will be taxed on capital gains at applicable rates, irrespective of the holding period.

Rationalisation of TDS Rates

The Income tax Budget 2024 proposes significant changes to simplify Tax Deducted at Source (TDS) rates and regulations. 

• Reduced TDS Rates: The government aims to reduce the TDS burden for various payments. TDS rates will be reduced from 5% to 2% for sections covering insurance commissions (except for companies), life insurance policy payments, commission/brokerage payments, rent payments by individuals, and specific payments made by individuals or Hindu Undivided Families (HUFs).
• Lower TDS for E-commerce: Businesses operating on e-commerce platforms will benefit from a significant reduction in TDS rates. The current 1% TDS on payments made by e-commerce operators to participants will be further reduced to 0.1%.
• Removal of TDS on Mutual Fund Repurchases: Section 194F, which levied a 20% TDS on unit repurchases by Mutual Funds or Unit Trust of India, is proposed to be omitted entirely.
• Crediting TDS/TCS: Tax deducted or collected at source (TDS/TCS) can now be used as credit while calculating TDS on salary income under section 192. This allows for a more streamlined tax filing process.
• TCS for Minors: The government plans to empower the Board to create rules allowing tax collected at source (TCS) on a minor’s income to be credited to a parent or guardian.
• Interest on Delayed TCS Payments: The interest rate on late payments of TCS will be increased from 1% to 1.5%, aligning it with the existing penalty for delayed TDS payments.
• Increased Deduction for Partner Remuneration: Firms can now deduct a higher amount for remuneration paid to working partners. The limit is proposed to be increased to ₹3,00,000 or 90% of the book profit (whichever is higher), on the first ₹6,00,000 of book profit or in case of a loss.

Here’s the table emphasising the changes in the TDS Rates:

Increased Securities transaction tax (STT) rates

The Income tax Budget 2024 Income tax proposes increasing Securities Transaction Tax (STT) rates for both options and futures trades. The STT on selling an option in securities will rise from 0.0625% to 0.1% of the option premium. Similarly, the STT on selling a futures contract will increase from 0.0125% to 0.02% of the contract value. This move aims to generate additional revenue for the government.

Simplification of Tax Reassessment

The Income tax Budget 2024 proposes significant changes to simplify tax reassessments. The current ten-year window for reassessing tax returns will be reduced to five years, providing taxpayers with more certainty. Additionally, a new “block assessment” scheme is proposed for search and seizure cases. This scheme will tax the total income for a specific period at a flat rate, eliminating the back-and-forth of traditional reassessments.

Furthermore, the budget 2024 Income tax outlines plans to streamline reassessment procedures overall. This includes clarifying time limits for penalties and appeals, along with potentially withholding tax refunds for a brief period to allow for additional scrutiny if needed. These measures aim to create a more efficient and predictable reassessment process for both taxpayers and the tax department.

Measures to Deepen the Tax Base

The Union Budget 2024 Income tax proposes several measures to broaden the tax net and improve tax collection efficiency. Here’s a breakdown of the key points:

• Taxing Share Buybacks as Dividends: Companies repurchasing their shares will face a change. Instead of the current system where the company pays an additional income tax, the income received by the investor selling their shares will be taxed as a dividend. Additionally, the investor’s cost of these shares will be considered a capital loss.
• Rental Income Classification: Income earned from renting out a property will be categorized solely under “income from house property” for tax purposes. This simplifies the process by removing the possibility of it being classified as “profits and gains of business or profession.”
• Capital Gains Tax on Gifts and Wills: Transferring capital assets (like stocks or property) as a gift, through a will, or via an irrevocable trust by entities other than individuals or Hindu Undivided Families (HUFs) will now be considered for calculating capital gains tax.
• TDS on Partner Payments: Businesses operating as partnerships will need to withhold tax deducted at source (TDS) at a rate of 10% on payments exceeding ₹20,000 made to partners in the form of salary, remuneration, commission, bonus, or interest.
• TCS on Luxury Goods: A new tax collected at source (TCS) of 1% will be levied on certain luxury goods with a value exceeding ₹10 lakh. This aims to improve tax collection on high-value purchases.
• TDS on Property Sales: The tax budget 2024 clarifies the process for calculating TDS when there are multiple buyers or sellers involved in a real estate transaction. The total consideration for the property will be the combined amount paid by all the buyers to all the sellers.
• TDS on Specific Bonds: Interest exceeding ₹10,000 earned on Floating Rate Savings (Taxable) Bonds (FRSB) 2020 or similar government securities will be subject to TDS.
• Life Insurance Company Expenses: Life insurance companies will no longer be able to deduct non-business expenditures from their taxable profits.
• Tax Paid Abroad: Income tax paid overseas through deductions will now be considered as income received when calculating the total taxable income of the taxpayer.
• Clarification on TDS for Professional Services: The budget 2024 income tax explicitly states that fees for professional or technical services (covered under Section 194J) are not considered “work” for the purpose of TDS under Section 194C (payments to contractors).
• Disallowing Settlement Expenses: Businesses will not be able to claim settlement fees paid for any legal violations (as notified by the government) as a business expense for tax purposes.
• Fair Market Value for IPOs: The tax budget 2024 proposes a method for calculating the fair market value of unlisted equity shares sold during an initial public offering (IPO).

Promoting Employment and Investment

The Union Budget 2024 Income tax prioritises fostering a business-friendly environment to attract investments and generate employment opportunities.

• Tax exemptions for retail schemes and ETFs are set up within the International Financial Services Centre (IFSC).
• Tax exemptions for certain incomes of the Core Settlement Guarantee Fund were established within the IFSC.
• Exclusion of specific financial companies located in the IFSC from a provision (Section 94B) that could  trigger tax scrutiny.
• The ‘Angel tax’ for all investor classes is abolished to boost up Indian startup eco-system and support innovation.
• Venture Capital Funds (VCFs) operating within the IFSC will no longer be required to explain the source of their funds when extending loans or investments to Indian entities.
• Remove surcharge on income tax payable by specified funds for income earned on securities.
• The corporate income tax rate for foreign companies (excluding those subject to special rates) was reduced from 40% to 35%.
• Remove tax levied on share premiums for private companies.
• A new presumptive tax regime was proposed for non-resident cruise ship operations.
• Exemption for any foreign company’s income from lease rentals of cruise ships received from a related company that operates such ships or ships in India.

Improved Tax Administration

The Union Budget 2024-25 Income tax proposes a range of measures to streamline tax administration, making it more efficient and taxpayer-friendly.

• Vivad se Vishwas Scheme: A new scheme for settling pending tax disputes will be introduced, offering a window for resolving these issues.
• Equalisation Levy Removal: The Equalisation Levy on e-commerce transactions will be discontinued from August 1, 2024.
• Relaxation under the Black Money Act: Non-reporting of small foreign assets (up to ₹20 lakh) will no longer be penalised under the Black Money Act.
• Decriminalisation of Late TDS Payment: Late payment of TDS (Tax Deducted at Source) will be decriminalised if the payment is made before filing the TDS statement.
• Time Limit for Tax Orders: The tax department has a 6-year limit on issuing orders for tax not deducted/collected.
• Lower TDS/TCS Certificates: Businesses can now apply for lower deduction or collection certificates for TDS on certain goods purchases and TCS on goods sales.
• Exemption from TCS: The government can now notify specific persons or categories who are exempt from TCS or subject to a lower TCS rate for specific transactions.
• Stricter Time Limits for TDS/TCS Corrections: The time limit for filing correction statements for TDS/TCS statements will be 6 years.
• Penalty for Late TDS/TCS Statements: The penalty for filing TDS or TCS statements after the deadline will be reduced from 12 months to 1 month.
• Liaison Office Filings: A deadline and penalty will be introduced for filing annual statements of activities by liaison offices.
• Transfer Pricing Officer Authority: The Transfer Pricing Officer’s authority will be expanded to handle specified domestic transactions.
• Aadhaar Update: The Aadhaar Enrolment ID will no longer be used; only the Aadhaar number will be quoted.
• Advance Ruling Applications: Applications for advance rulings transferred from the Authority of Advance Rulings can be withdrawn before October 31, 2024.
• Appeal Powers for Commissioner: The Commissioner (Appeals) will be empowered to set aside ex-parte assessment orders.
• Penalty for AEOI Non-Compliance: A penalty for failing to comply with due diligence requirements related to Automatic Exchange of Information (AEOI) will be imposed.
• Tax Clearance Certificate: A reference to the Black Money Act, 2015 will be included for obtaining a tax clearance certificate.
• Extended Time Limit for Belated Returns: Tax assessments for belated returns can now be made up to 12 months from the end of the financial year the return was filed.
• Correction of Sports Fund Name: The name of the National Sports Fund will be corrected for tax deduction purposes.
• Removal of National Housing Board Reference: As the RBI now regulates housing finance companies, references to the National Housing Board will be removed from the Income Tax Act.
• Black Money Act and Seized Assets: The Income Tax Act will be amended to enable the recovery of liabilities under the Black Money Act from seized assets.
• Benami Property Act Amendments: The Prohibition of Benami Property Transactions Act will be amended to offer immunity from penalty and prosecution to a benamidar (person holding property in someone else’s name) upon full disclosure. Additionally, time limits for property attachment and adjudicating authority references will be rationalised.