In the Union Budget 2024-25, Finance Minister Nirmala Sitharaman has rolled out new tax proposals designed to simplify the tax system, ease compliance, and offer financial relief to taxpayers. Here’s what you need to know about these changes and their potential impact.
Tax System Streamlined
In her Budget speech, the Union Finance Minister emphasized her commitment to simplifying taxation. She announced plans to conduct a thorough review of the Income Tax Act, 1961 over the next six months. The goal is to make the Act clearer and more straightforward. Smt. Nirmala Sitharaman said, “This will provide tax certainty to the tax payers reducing disputes and litigation.”
To address tax uncertainty and minimize disputes, the Finance Minister has proposed a major overhaul of the reassessment process. According to the new guidelines, an assessment can only be reopened beyond three years from the end of the assessment year if the unreported income exceeds ₹50 lakh. The maximum period for reopening will be limited to five years from the end of the assessment year. Additionally, for cases involving searches, the time limit for reopening will be reduced from the current ten years to six years prior to the search year.
Streamlining Tax Deducted At Source (TDS)
In her budget speech, Smt. Nirmala Sitharaman outlined plans to streamline taxation for charities and revise Tax Deducted at Source (TDS) rules. The government will merge the two existing tax exemption regimes for charities into a single framework.
Additionally, the TDS rate on various payments will be standardized at 2%, and the 20% TDS rate on mutual fund unit repurchases will be abolished. For e-commerce operators, the TDS rate will be reduced from 1% to 0.1%, and Tax Collected at Source (TCS) credits will now be applicable against TDS deducted on salaries. Moreover, penalties for late TDS payments up to the filing deadline will be decriminalized.
The budget also introduces notable changes to direct taxes:
Capital Gains: Short-term gains from financial assets will be taxed at 20%, while long-term gains on all types of assets will face a 12.5% tax. Additionally, the exemption limit for capital gains on financial assets has been raised to ₹1.25 lakh per year.
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Angel Tax: The Angel Tax, which previously burdened startup investors, has been abolished, encouraging more investment in new ventures.
Corporate Tax: The tax rate for foreign companies has been cut from 40% to 35%, making India a more appealing place for foreign investment.
Safe Harbour Rates: New safe harbour rates have been introduced for foreign companies selling raw diamonds.
Cruise Industry: A simplified tax regime for the domestic cruise industry is also on the table.
Streamlining Dispute Resolution: Introducing Vivad se Vishwas Scheme, 2024
To tackle the backlog of income tax disputes and expedite resolution, Union Finance Minister Nirmala Sitharaman has proposed the Vivad se Vishwas Scheme, 2024. This initiative aims to address certain income tax disputes that are currently pending in appeal.
Additionally, the monetary limits for filing appeals related to direct taxes, excise, and service tax in High Courts, Supreme Court, and tribunals have been increased to ₹60 lakh, ₹2 crore, and ₹5 crore, respectively. To further reduce litigation and enhance clarity in international taxation, the government plans to expand the scope of safe harbour rules and streamline the transfer pricing assessment process.
New Income Tax Slabs: Significant Benefits For Incomes Between ₹3 Lakh And ₹12 Lakh
The new tax regime brings significant changes to income tax slabs, particularly benefiting those with incomes between ₹3 lakh and ₹12 lakh:
- ₹0 – ₹3 lakh: No tax
- ₹3 – ₹7 lakh: 5% (with a tax rebate under section 87A)
- ₹7 – ₹10 lakh: 10%
- ₹10 – ₹12 lakh: 15%
- ₹12 – ₹15 lakh: 20%
- Above ₹15 lakh: 30%
#BudgetDayOnNewsX | Here’s a comparative analysis between the previous and the new tax regime announced by FM Nirmala Sitharaman
Previous Tax Regime–
Rs 0-3 L: NIL
Rs 3-6 L: 5%
Rs 6-9 L: 10%
Rs 9-12 L: 15%
Rs 12-15 L: 20%
Above Rs 15 L: 30%New Tax Regime– Rs 0-3 L:… pic.twitter.com/k5cAy8FImT
— NewsX World (@NewsX) July 23, 2024
Impact on Taxpayers
Increased Savings: The new tax slabs could allow those earning between ₹3 lakh and ₹12 lakh to save up to ₹17,500 compared to the old system. This means more disposable income for these taxpayers.
Standard Deduction: The standard deduction for salaried employees has been raised from ₹50,000 to ₹75,000, providing additional tax relief.
Family Pension Relief: The tax deduction limit for family pensions has increased from ₹15,000 to ₹25,000, offering better financial support to pensioners.
Overall Benefits
The new tax regime has been designed to simplify tax filing and provide more financial relief to the taxpayers. By raising standard deductions and revising tax slabs, many taxpayers will enjoy a boost in disposable income and an increased rate of savings can be harnessed.
There is good news for pensioners as well, with increased deductions aimed at enhancing financial security during their retirement. These updates highlight the government’s commitment towards streamlining the tax system and enhancing its citizens’ financial security. By simplifying tax filing procedures and boosting deductions, the new regime ensures that more money remains in taxpayers’ hands and more disposable income is created which inturn will encourage the tax payers to spend more in the economy.
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