On July 23, 2024, Finance Minister Nirmala Sitharaman unveiled the Union Budget 2024-25, presenting a comprehensive set of direct tax reforms aimed at simplifying tax structures, enhancing compliance, and fostering economic growth. These reforms encompass a wide array of changes including enhanced standard deductions, revised tax structures, simplification of capital gains taxation, and more.
Enhanced Limits for Standard Deduction and Family Pension Deduction
One of the significant reforms under the new tax regime is the increase in the standard deduction for salaried individuals from Rs. 50,000 to Rs. 75,000. Additionally, the deduction on family pensions for individuals with pension income has been raised from Rs. 15,000 to Rs. 25,000, provided they file taxes under the new regime.
Revised Tax Structure
The new tax regime introduces a revised tax structure as follows:
| Income Tax Slabs | Tax Rate |
| ₹0-3 lakh | Nil |
| ₹3-7 lakh | 5% |
| ₹7-10 lakh | 10% |
| ₹10-12 lakh | 15% |
| ₹12-15 lakh | 20% |
| Above ₹15 lakh | 30% |
These changes enable a salaried employee in the new tax regime to save up to Rs. 17,500 in taxes, providing significant relief and encouraging more individuals to adopt the new regime.
Simplification of Capital Gains Taxation
The Budget 2024-25 also simplifies the taxation of capital gains by consolidating holding periods and adjusting tax rates. For asset classification into long-term and short-term, there are now only two holding periods: 12 months and 24 months, eliminating the 36-month holding period. Listed securities with a holding period exceeding 12 months are classified as long-term, while all other assets have a 24-month holding period.
Notably, unlisted bonds and debentures will now attract tax on capital gains at applicable slab rates, aligning with the taxation of debt mutual funds and market-linked debentures. The tax on short-term capital gains for listed equity shares, equity-oriented fund units, and business trust units has increased to 20% from 15%, while other financial and non-financial assets will continue to be taxed at slab rates.
For long-term capital gains, the exemption limit has been raised from Rs. 1 lakh to Rs. 1.25 lakh per year, though the tax rate has increased from 10% to 12.5%. The tax rate on long-term capital gains for other assets has been reduced from 20% to 12.5%, but the indexation benefit has been removed. However, the provision allowing the benefit of Fair Market Value (FMV) as of April 1, 2001, for cost calculation remains intact.
Adjustments in TDS Rates and New Provisions
To facilitate business operations and improve compliance, the Budget has reduced TDS rates on specified payments, effective from either October 1, 2024, or April 1, 2025. A new TDS provision (Section 194T) has been introduced for payments made by firms (including LLPs) to partners as salary, remuneration, interest, bonus, or commission, with payments exceeding Rs. 20,000 subject to a 10% TDS.
Abolition of Angel Tax
The Budget proposes to abolish the Angel Tax provision under Section 56(2)(viib), which taxed companies issuing shares at a price exceeding their Fair Market Value. This move is expected to benefit the startup ecosystem by easing the process of raising funds and reducing compliance burdens.
Reduction in Corporate Taxes for Foreign Companies
Corporate tax on foreign companies has been reduced from 40% to 35%, a strategic move to attract more foreign investment and improve the competitiveness of Indian businesses on the global stage.
Increased Deduction on Employer’s Contribution to Pension Scheme
Section 80CCD now allows a higher deduction for employer contributions to pension schemes, increasing from 10% to 14% of the employee’s salary during the previous year, thereby incentivizing more contributions towards employee pensions.
Changes in STT on Futures and Options
The Securities Transaction Tax (STT) on futures has been increased from 0.0125% to 0.02%, and on options, it has been raised from 0.0625% to 0.1%, aligning the tax burden more closely with market transactions.
Reopening of Income Tax Returns and Other Direct Tax Updates
The Budget has also introduced changes to the reopening of income tax returns, now allowing it only if the escaped income is Rs. 50 lakh or more, within three years from the end of the assessment year, extendable up to five years. For search cases, the time limit has been reduced from 10 years to six years.
Increased Monetary Limits for Tax Dispute Appeals
To reduce the backlog of pending tax dispute cases, the monetary limits for filing appeals in tax tribunals, high courts, and the supreme court have been raised to Rs. 60 lakh, Rs. 1 crore, and Rs. 2 crore, respectively.
Reintroduction of Vivaad se Vishwas Scheme
The Vivaad se Vishwas Scheme has been reintroduced to facilitate the settlement of income tax disputes and reduce litigation, offering a more straightforward resolution process for taxpayers.
In summary, the direct tax reforms in the Union Budget 2024-25 reflect the government’s commitment to simplifying tax structures, enhancing compliance, and promoting economic growth. These reforms are designed to benefit a broad spectrum of taxpayers, from individual salaried employees to large corporations, and are expected to foster a more conducive environment for investment and economic development.
