Union Budget 2024-25: Key Reforms in Direct Taxation Explained

Overview of the Union Budget 2024-25: Reforms in Direct Taxation

The Union Budget for 2024-25 introduces several pivotal reforms in direct taxation designed to alleviate taxpayer burden while promoting investment and economic growth. Key updates include revised tax slabs with lower rates, increased standard deductions, and enhanced family pension benefits. Additionally, the budget aims to simplify tax administration, rationalize capital gains taxation, and incentivize investments in the International Financial Services Centre (IFSC). These reforms reflect the government’s commitment to streamlining tax procedures while fostering economic progress.

New Tax Regime

A.1 Revised Tax Slabs

The new tax regime introduces significant relief through revised income tax slabs and rates, which are as follows:

• Total Income:
  • Up to ₹ 3,00,000: Nil
  • ₹ 3,00,001 to ₹ 7,00,000: 5%
  • ₹ 7,00,001 to ₹ 10,00,000: 10%
  • ₹ 10,00,001 to ₹ 12,00,000: 15%
  • ₹ 12,00,001 to ₹ 15,00,000: 20%
  • Above ₹ 15,00,000: 30%

A.2 Standard Deduction

The standard deduction for salaried individuals and pensioners has been increased from ₹ 50,000 to ₹ 75,000 under the new tax regime.

A.3 Family Pension Deduction

The deduction from family pension has been raised from ₹ 15,000 to ₹ 25,000 in the new tax framework.

A.4 Non-Government Employer Contribution to New Pension Scheme

The deduction for non-government employer contributions to a pension scheme under Section 80CCD will increase from 10% to 14% of the employee's salary. Employees also benefit from this change, with a deduction limit raised to 14%.

Measures to Promote Investment and Employment

B.1 Incentives to IFSC

The budget proposes enticing measures for the IFSC, such as:

• Tax exemptions for retail schemes and Exchange Traded Funds.
• Exemption of selected income from the Core Settlement Guarantee Fund.
• Exclusion of Section 94B for specific finance companies in the IFSC.
• Removal of source of funds explanations for VCFs in the IFSC.
• No surcharge on income from securities for specified funds.

B.2 Foreign Companies Tax Rate Reduction

The income tax rate for foreign companies (excluding those with special rates) will be lowered from 40% to 35%.

B.3 Tax on Share Premium

Effective from the financial year 2024-25, provisions related to tax on share premiums for private firms under clause (viib) of sub-section (2) of Section 56 will be eliminated.

B.4 Presumptive Taxation for Cruise Ship Operations

A presumptive taxation regime will be established for non-resident cruise ship operations, with exemptions for related lease rental income.

Simplification and Rationalization

C.1 Block Assessment Scheme

A new block assessment scheme will be introduced for search and seizure cases, covering a block period of six previous years, taxed at a 60% rate.

C.2 Reassessment Time Limit Reduction

The time frame for reassessment will be reduced from ten years to five years, with rationalized procedures and penalties clarified under Section 275.

C.3 Charitable Trusts and Institutions

Amendments will merge existing exemption schemes, streamlining application processes and timelines for the registration and approval of benefits for charitable trusts.

C.4 Capital Gains Tax Simplification

Capital gains taxation will undergo rationalization, with rates for short-term gains adjusted to 20% for specific financial assets, while long-term gains will be taxed at 12.5%. Exemptions on certain listed financial assets have been increased from ₹ 1 lakh to ₹ 1.25 lakh annually.

C.5 TDS Rate Adjustments

TDS rates will decrease from 5% to 2% for various sections, effective from specified dates in 2024 and 2025.

C.6 Tax Credit Adjustments

Provisions will allow credit for all taxes deducted or collected during salary income computations under Section 192.

C.7 TCS Credit for Minors

The Board will have the authority to establish rules for crediting TCS to parents on behalf of minors.

C.8 Interest Alignment for TCS and TDS

The simple interest rate on delayed TCS payments will increase from 1% to 1.5%, aligning with TDS rates.

C.9 Deduction Limits for Working Partners

The remuneration cap for partners in a firm will increase to ₹ 3,00,000 or 90% of the first ₹ 6,00,000 of book profit, whichever is higher.

Widening Tax Base and Anti-Avoidance Measures

D.1 Buy-Back of Shares

Income from buy-backs will be treated as dividend income for investors, while costs will be viewed as capital losses.

D.2 Securities Transaction Tax (STT) Adjustments

STT rates on option premiums and futures will increase to 0.1% and 0.02%, respectively.

D.3 Rental Income Classification

Income from renting will be categorized under 'income from house property' rather than 'business profits'.

D.4 Capital Asset Transfers

Transfers of capital assets via gifts or trusts by entities other than individuals or HUFs will be considered transfers for capital gain calculations.

D.5 TDS on Partner Payments

Payments to partners exceeding ₹ 20,000 for salaries, commissions, and bonuses will be subject to a 10% TDS.

D.6 TCS on Luxury Goods

A TCS of 1% will be imposed on luxury goods valued over ₹ 10 lakh.

D.7 TDS on Immovable Property Transfers

Clarifications will be issued regarding consideration amounts for TDS involving multiple transferors or transferees.

D.8 TDS on Floating Rate Savings Bonds

TDS will apply to interest exceeding ₹ 10,000 on FRSB 2020 bonds.

D.9 Life Insurance Non-Business Expenditure

Non-admissible expenditures will be classified into life insurance business profits.

D.10 Inclusion of Foreign Taxes

Income tax deducted abroad will be regarded as income received for total income calculations.

D.11 Fees for Technical Services

Provisions will clarify that income under Section 194J does not fall under the TDS requirements of Section 194C.

D.12 Settlement Amount Expenditures

Expenses from settlement fees for legal contraventions will be disallowed.

D.13 Fair Market Value (FMV) Definition

A calculation method for FMV as of January 31, 2018, will be established for unlisted equity shares during IPOs.

Tax Administration Reforms

E.1 Vivad se Vishwas Scheme, 2024

A new scheme for settling pending appeals will be introduced with a specific operational date and last application date.

E.2 Equalisation Levy

The 2% Equalisation Levy on e-commerce supplies will cease to apply after August 1, 2024.

E.3 Non-Reporting De-Penalization

Failure to report movable assets under ₹ 20 lakh will be de-penalized under the Black Money Act.

E.4 Decriminalization of Late TDS Payments

Late payment of TDS will be decriminalized if paid before the TDS statement filing deadline.

E.5 Tax Collection Orders Limitation

No order regarding failure to deduct or collect tax will be made after six years from the end of the payment year.

E.6 Processing Statements

The Board will develop plans for processing statements not filed by deductors.

E.7 Lower Deduction Certificates

Applications for lower deduction or collection certificates under Section 194Q will be facilitated.

E.8 TCS Exemptions

The government will notify individuals or classes exempt from TCS collection.

E.9 TDS/TCS Correction Statement Deadline

No correction statements can be submitted more than six years after fiscal year-end.

E.10 Penalties for Late Statements

Penalties for tardy TDS or TCS statement submissions will be established, reducing the timeline from 12 months to one month.

E.11 Liaison Office Reporting Obligation

A timetable for annual statement submissions for liaison offices will be mandated, along with penalties for failure to comply.

E.12 Transfer Pricing Officer Authority

The Transfer Pricing Officer will manage specific domestic transactions referred by the Assessing Officer.

E.13 Aadhaar Quoting Requirement

The use of Aadhaar Enrolment ID in lieu of the Aadhaar number will be discontinued.

E.14 Withdrawal of Advance Rulings Applications

Applications before the Board for Advance Rulings may be withdrawn by October 31, 2024.

E.15 Appellate Commissioner Powers

Commissioners (Appeals) will be empowered to annul ex-parte assessment orders.

E.16 Amendment in Section 271FAA

Amendments to Section 271FAA will introduce penalties for non-compliance related to Automatic Exchange of Information (AEOI).

E.17 Tax Clearance Certificates

References to the Black Money Act, 2015 will be included in obtaining tax clearance certificates.

E.18 Returns Post-Condonation of Delay

Assessments for returns filed after condonation of delay can occur up to 12 months from the fiscal year-end.

E.19 Donations to National Sports Development Fund

Contributions to the National Sports Fund will continue to qualify for deductions under Section 80G, with a name error corrected.

E.20 National Housing Board Reference Removal

References to the National Housing Board will be removed from Section 43D due to the supervision of housing finance companies by the Reserve Bank of India.

E.21 Black Money Act Liability Adjustments

Incorporation of the Black Money Act will allow the recovery of liabilities from seized assets.

E.22 Benami Property Transactions Amendment

Protections from penalties and prosecution will be granted to benamidars that fully disclose their circumstances, and time limits for property attachments will be rationalized.

Conclusion

The Union Budget 2024-25 presents a thorough set of revisions to direct taxation, aimed at reducing the tax burden for both individuals and businesses. With lower tax rates, expanded deductions, and targeted incentives, the budget seeks to stimulate economic activity and investment. The proposed reforms in tax administration and capital gains taxation further signify a dedication to a more efficient and transparent tax framework. Collectively, these measures are expected to foster a more conducive atmosphere for taxpayers and investors, promoting sustained economic growth.