A brief Overview of the Key Direct Tax Proposal in Union Budget 2024
Amidst a lot of expectation, the inaugural budget of Modi 3.0 was unveiled by Finance Minister Smt. Nirmala Sitharaman on July 23, 2024. This budget introduces substantial reforms in the realm of direct taxation, poised to influence the tax obligations of virtually every taxpayer in the nation. Let’s visit some of the key direct tax proposal in the Union Budget-2024:
1. Change in Income Tax Rate & Slab:
The tax rate under the Old Tax Regime (OTR) has not been altered or disturbed in any way. However, the same is revised for the taxpayers opting for the New Tax Regime (NTR). The tax slab & rate thereof for the FY 2024-25 vis a vis FY 2023-24 are distinguished as under:
| Tax Rate | Income Range for the FY 2023-24 | Income Range for the FY 2024-25 |
| Nil | Up to Rs. 3 Lakh | Up to Rs. 3 Lakh |
| 5% | From Rs. 3 Lakh to Rs. 6 Lakh | From Rs. 3 Lakh to Rs. 7 Lakh |
| 10% | From Rs. 6 Lakh to Rs. 9 Lakh | From Rs. 7 Lakh to Rs. 10 Lakh |
| 15% | From Rs. 9 Lakh to Rs. 12 Lakh | From Rs. 10 Lakh to Rs. 12 Lakh |
| 20% | From Rs. 12 Lakh to Rs. 15 Lakh | From Rs. 12 Lakh to Rs. 15 Lakh |
| 30% | Above 15,00,000 | Above 15,00,000 |
2. Enhancement in the limit of Standard Deduction & family pension deduction for the person opting for NTR:
As expected, the limit of standard deduction for the salaried taxpayers have been increased from Rs. 50,000/- to Rs. 75,000/-. Limit for family deduction has also been increased from Rs. 15,000/- to Rs. 25,000/-.
3. Simplification of the Capital Gain Taxation Law:
Currently, capital gains are taxed at varying rates, ranging from 10% to 30%. Additionally, the criteria for classifying these gains as Short Term Capital Gain (STCG) or Long Term Capital Gain (STCG) also differ from 12 to 36 months. In budget-2024, it is proposed that there will be only 12 months and 24 months to classify capital gains as STCG or LTCG. The law is summarized the in the chart tabulated hereunder:
|
Nature of Assets |
Existing Holding Period for qualifying as Long Term | Proposed Holding Period for qualifying as Long Term |
| Listed securities | 12 Months | 12 months |
| Unlisted shares and immovable property | 24 Months | 24 Months |
| Bonds, Debentures & Gold | 36 Month | 24 Months |
- b) All the more important is that the indexation benefit shall not be available on sale of any Long Term Capital Assets w.e.f. 23.07.2024.
c) Capital Gain Tax Rate as proposed in the Budget – 2024:
i) The tax rate on STCG from sale of shares & equity mutual funds which is covered by STT has been increased from 15% to 20% [Section 111A].
ii) There is no change in the tax rate for STCG arising from sale of other assets (other than shares/MF as discussed hereinabove) & it would continue to be taxable according to the applicable tax slab of the person.
iii) LTCG arising from unlisted shares and immovable property which was taxable earlier @20% with indexation benefit is now proposed to be taxed @ 12.50% without any indexation benefit [Section 112].
iv) LTCG arising from sale of listed shares or equity oriented mutual funds which was earlier taxable @ 10% with exemption limit of Rs. 1 Lakh is now taxable @ 12.50% with exemption limit enhanced to Rs. 1.25 Lakh [Section 112A].
v) LTCG from listed bonds and debentures which was earlier taxable @ 20% without indexation is now proposed to be taxable @ 12.5% without indexation benefit [Section 112].
vi) LTCG from unlisted bonds and debentures which was earlier taxable @ 20% without indexation benefit is now proposed for taxation at applicable rate by deeming it as STCG under section 50AA.
4. Changes in the TDS Provisions:
i)The rate of TDS has been reduced from 5% to 2% in respect of following payments:
a) Payment of insurance commission (in case of person other than company) U/s 194D
b) Payment in respect of life insurance policy U/s 194DA
c) Commission on sale of lottery tickets U/s 194G
d) Payment of commission or brokerage U/s 194H
e) Payment of rent by certain individuals or HUF U/s 194IB
f) Payment of certain sums by certain individuals or HUF U/s 194M
ii)The TDS rate has been reduced from 1% to 0.1% in respect of payment of certain sums by e-commerce operators to e-commerce participants. The TDS is proposed to be omitted in case of payments on account of repurchase of units by Mutual Fund or Unit Trust of India.
iii) It is now proposed that the interest, salary, remuneration or commission payable by the firm to the partners shall be liable for TDS @10%.
5. Enhancement of deduction permissible towards Remuneration to the Partners of a firm:
At present, partnership firm is entitled for deduction towards remuneration to the partners as under:
a) On the first Rs.3,00,000 of the book profit on in case of Loss: Rs.1,50,000/- or @ 90% of the book-profit, whichever is more
b) On the balanced book-profit: At the rate of 60%
Now, the limit of permissible deduction has been proposed to be raised as under:
a) On the first Rs. 6,00,000 of the book profit on in case of Loss: Rs.3,00,000/- or @ 90% of the book-profit, whichever is more
b) On the balanced book-profit: At the rate of 60%
6. Taxation on Buy-back of shares w.e.f.01/10/2024:
a) It is proposed that any sum paid by a domestic company for purchase of its own shares shall be treated as dividend in the hands of shareholders & shall be chargeable to income-tax at applicable rates. No deduction for expenses shall be available against such dividend income.
b) The cost of acquisition of the shares which have been bought back would result in a capital loss in the hands of the shareholder which can be set off against capital gain income only.
7. Time limit to file TDS/TCS Correction statement:
At present, there is no time limit to file the correction statement for TDS return/TCS statement. The same is now proposed to be within a period of 6 years from the end of the financial year in which it was filed.
Conclusion:
The tax rate of 12.50% or 20% & few other tax provisions has been made applicable from the date of budget presentation itself i.e., from 23rd July 2024. In the next year ITR, the taxpayers would be required to divide the income in two parts i.e., income till 22nd July 20224 & income from 23rd July 2024. The Hon’ble Finance Minister has also proposed a comprehensive review of the Income Tax Act of 1961, expected to be completed within the next six months. It would have been preferable if the disruptive amendments proposed in Union Budget 2024 were deferred until the next budget. This would not only have added certainty to tax laws but also eased compliance burden.
[Views expressed are the personal view of the author. Readers are advised to seek professional advice before taking any decisions. Readers may forward their feedback & queries at nareshjakhotia@gmail.com. Other articles & response to queries are available at www.theTAXtalk.com]
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