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Income tax changes in Budget 2024: On the personal income-tax front, the tax slab rates have been rationalised only under the new tax regime
Budget 2024 Highlights: Post the recent elections, wherein the Modi government was re-elected to power, Finance Minister Nirmala Sitharaman unveiled her seventh Union Budget on July 23. It showcased a financial blueprint that signifies Prime Minister Narendra Modi's steadfast commitment to India's economic transformation. This budget, following the interim budget earlier this year, heralds a new chapter of fiscal prudence and visionary investments aimed at fortifying India's economic resilience.
With eloquent poise, the FM articulated a grand vision for India's future with special focus on agriculture, first time employees inclusion, and employment generation for the youth. In this budget, significant allocations have been made towards infrastructural modernization, including the ambitious expansion of expressways, railway corridors, airports, and sports facilities.
Significant focus was also placed on direct taxes in the full Budget 2024. The FM announced a comprehensive review of the income tax law in the next six months to make it concise, lucid, easy to read and understand.
On the personal income-tax front, the slab rates have been rationalised only under the new tax regime.
Further, the standard deduction has been proposed to be increased from Rs 50,000 to Rs 75,000.
Further, in order to promote contribution towards National Pension Scheme (NPS), threshold for contribution by employers (other than government employers) is proposed to be increased from 10 per cent to 14 per cent of the employee's salary specified for this purpose.
According to the FM, these measures will provide relief to the tune of Rs 17,500 to the individual taxpayer. This move will further popularize the new tax regime.
To promote a more favorable investment environment in India, the government has abolished angel tax which was previously imposed on investments made by investors in privately held companies if the investments were made at a valuation higher than the fair market value. This move will foster a more conducive climate for start-ups to raise funds at higher valuations. Start-ups can now raise funds at any valuation above the FEMA floor price without any tax implication and this can prove to be a boost to their price negotiations.
As a measure to incentivise foreign companies and non-residents, it has been proposed to reduce the rate of tax from 40 per cent to 35 per cent. This proposal should address the reducing trend of FDI inflows during the last fiscal year as highlighted by the economic survey. The reduction in rates also seeks to partially reduce the disparity in tax rate of foreign companies vis-à-vis domestic companies.
In one of the major moves, the FM has attempted to rationalise the taxation of capital gains.
Correspondingly, in order to simplify the process of calculation of long-term capital gains, indexation is proposed to be removed and no benefit shall be available in this regard. This will result in an extremely harsh tax cost especially on sale of old assets including ancestral assets. Also, the limit for exemption of long term capital gains on listed equity shares, equity-oriented mutual funds and units of business trust has been increased from Rs 1 lakh to Rs 1.25 lakh per year.
In line with its objective to improve ease of doing business, the Government has proposed to simplify the TDS rate structure. Also, Equalisation Levy of 2 per cent on e-commerce supply of goods or services, shall no longer be applicable on or after August 1, 2024.
In relation to the buy-back tax, the burden has now been shifted from Companies to shareholders and the same shall be taxed as dividend. Further, the cost of acquisition of such shares shall be treated as a capital loss to the investor which can be adjusted against other capital gains. This would result in an increased overall tax burden from 20 per cent to 30 per cent.
With its remarkable tax reforms, this full Budget 2024 paves the way for a more dynamic and equitable economic landscape, poised to unlock new opportunities and drive sustainable growth across sectors.
This article first appeared in Business Standard on 24 July 2024.