Union Budget 2024

By: Mr. Prasanna Ravikant Bhat - 24th July, 2024

Tax and Compliance Reforms:

1. Individual income tax:

   Tax Rates: - The Budget has proposed new tax rates and slabs under the new regime, which are:

   Income	Rate of tax
   Rs. 0 to Rs. 3 Lakhs	Nil
   Rs. 3 lakhs to Rs. 7 Lakhs	5%
   Rs. 7 lakhs to Rs. 10 lakhs	10%
   Rs. 10 lakhs to Rs. 12 lakhs	15%
   Rs. 12 lakhs to Rs. 15 lakhs	20%
   Above Rs. 15 lakhs	30%

   The standard deduction limit u/s 16(ia) for salaried and pension earners has been increased to Rs.75,000 for those taxpayers using the new tax regime.

   There are no changes to the tax rates under the old tax regime.

   Note:- The new tax regime will continue to be the default tax regime. However, the assessee can still avail benefits under old tax regime on opt-out basis as per the Law.

2. The taxation of capital gains is proposed to be rationalized and simplified. There are three components to this simplification.

   Firstly, it is proposed that there will only be two holding periods, 12 months and 24 months, for determining whether the capital gains is short-term capital gains or long term capital gains. For all listed securities, the holding period is proposed to be 12 months and for all other assets, it shall be 24 months. Thus, units of listed business trust will now be at par with listed equity shares at 12 months instead of earlier 36 months. The holding period for bonds, debentures, gold will reduce from 36 months to 24 months. For unlisted shares and immovable property, it shall remain at 24 months.

   Secondly, the rate for short-term capital gain on STT paid equity shares, units of equity oriented mutual fund and unit of a business trust is proposed to be increased to 20% from the present rate of 15%. Other short-term capital gains shall continue to be taxed at applicable rate.

   The rate of long-term capital gains under provisions of various sections of the Act is proposed to be 12.5% in respect of all category of assets. This rate earlier was 10% for STT paid listed equity shares, units of equity-oriented fund and business trust under section 112A and for other assets it was 20% with indexation under 34 section 112. However, an exemption of gains upto 1.25 lakh (aggregate) is proposed for long-term capital gains under section 112A on STT paid equity shares, units of equity-oriented fund and business trust, thus, increasing the previously available exemption which was upto 1 lakh of income from long term capital gains on such assets. For bonds and debentures, rate for taxation of long-term capital gains was 20% without indexation. For listed bonds and debentures, the rate shall be reduced to 12.5%. Unlisted debentures and unlisted bonds are of the nature of debt instruments and therefore any capital gains on them should be taxed at applicable rate, whether short-term or long-term.

   Thirdly, simultaneously with rationalisation of rate to 12.5%, indexation available under second proviso to section 48 is proposed to be removed for calculation of any long-term capital gains which is presently available for property, gold and other unlisted assets.

3. Hon FM announced that there will be a comprehensive review of the Income Tax Act, aiming to simplify taxation norms and potentially provide further relief to taxpayers, enhancing their disposable income.

   An assessment hereinafter can be reopened beyond three years from the end of the assessment year only if the escaped income is Rs 50 lakh or more, up to a maximum period of five years from the end of the assessment year. This period was 10 year earlier. Also in search cases, a time limit of six years before the year of search, as against the existing time limit of ten years, is proposed.

   It is proposed to provide that the appeal before the ITAT may be filed within two months from the end of the month in which the order sought to be appealed against is communicated to the assessee or to the Principal Commissioner or Commissioner, as the case may be.

4. It is now proposed to amend the limit of remuneration to working partners in a partnership firm, which is allowed as deduction. It is proposed that on the first Rs 6,00,000 of the book-profit or in case of a loss, the limit of remuneration is increased to Rs 3,00,000 or at the rate of 90 per cent of the book-profit, whichever is more as follows:

   1. on the first Rs. 6,00,000 of the book profit or in case of a loss Rs. 3,00,000 or at the rate of 90 per cent of the book profit, whichever is more;

   2. on the balance of the book-profit at the rate of 60 per cent

5. It is proposed that, the sum paid by a domestic company for purchase of its own shares shall be treated as dividend in the hands of shareholders, who received payment from such buy-back of shares and shall be charged to income-tax at applicable rates. No deduction for expenses shall be available against such dividend income while determining the income from other sources.

   The cost of acquisition of the shares which have been bought back would generate a capital loss in the hands of the shareholder as these assets have been extinguished. Therefore, when the shareholder has any other capital gain from sale of shares or otherwise subsequently, he would be entitled to claim his original cost of acquisition of all the shares (i.e. the shares earlier bought back plus shares finally sold).

   It shall be computed as follows:

   1. deeming value of consideration of shares under buy-back (for purposes of computing capital loss) as nil;

   2. allowing capital loss on buy-back, computed as value of consideration (nil) less cost of acquisition;

   3. allowing the carry forward of this as capital loss, which may subsequently be set-off against consideration received on sale and thereby reduce the capital gains to this extent.

6. It is proposed to increase the rates of securities transaction tax on sale of an option in securities from 0.0625 per cent to 0.1 per cent of the option premium, and on sale of a futures in securities from 0.0125 per cent to 0.02 per cent of the price at which such “futures” are traded.

7. It is proposed that a new TDS section 194T may be inserted to bring payments such as salary, remuneration, commission, bonus and interest to any account (including capital account) of the partner of the firm under the purview of TDS for aggregate amounts more than Rs 20,000 in the financial year. Applicable TDS rate will be 10%.

8. It is proposed to levy TCS on any other goods of value exceeding ten lakh rupees, as may be notified by the Central Government in this behalf. Such goods would be in the nature of luxury goods.

9. It is proposed to amend the Act to clarify that where there is more than one transferor or transferee in respect of an immovable property, then such consideration shall be the aggregate of the amounts paid or payable by all the transferees to the transferor or all the transferors for transfer of such immovable property.

10. It is proposed to explicitly state that any sum referred to in sub-section (1) of section 194J does not constitute “work” for the purposes of TDS under section 194C.

11. The budget proposes to omit section 194F of the Income-tax Act relating to payments on account of repurchase of units by Mutual Fund or Unit Trust of India (UTI). This amendment will take effect from October 1, 2024

12. Hon FM has also proposed to increase the deduction of expenditure by employers towards NPS from 10 to 14 % of the employee’s salary.

    Deduction on family pension for pensioners increased from ?15,000 to ?25,000.

    A new scheme named NPS Vatsalya has been proposed to be made available for parents to invest in on behalf of their minor child. The account may be passed to the child after the child becomes a major.

13. Monetary limits for filing appeals related to direct taxes, excise and service tax in the Tax Tribunals, High Courts and Supreme Court have been increased to Rs 60 lakh, Rs 2 crore and Rs 5 crore respectively.

14. The Budget proposes to abolish angel tax for all investor classes.

15. The government proposed several changes in the tax deducted at source structure, including reducing the rate for e-commerce operators to 0.1 per cent from existing 1 per cent, and allowing TCS credit against TDS deducted on salaries.

16. Hon FM also announced a cut in the corporate tax rate for foreign companies, reducing it from 40% to 35%.

17. Tax on import of Gold and silver reduced to 6% from 15% earlier.

18. Hon FM also stated that rules and recognition for Foreign Direct Investments (FDIs) will be simplified to facilitate their inflow. The aim is to prioritize and promote the use of the Rupee for overseas investments.

19. The Limit of MUDRA Loans has been proposed to increase from Rs.10 Lakh to Rs. 20Lakh for those who have availed and successfully repaid loans under the TARUN category.

20. Customs duties on 25 critical minerals for sectors like nuclear energy, renewable energy, space, defence, telecommunications, and high-tech electronics are made fully exempt and reduced BCD on two of them.

21. Hon FM also announced facilitating term loans for MSMEs for the purchase of machinery and equipment without collateral and guarantee for which a new scheme will be introduced. This guarantee fund will provide guarantees of up to Rs 100 crore.

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