Budget 2024-25 has been a mixed bag for taxpayers. While the government has provided sops, such as increasing the standard deduction by Rs 25,000 for salaried employees, under the new tax regime, the old regime was left untouched. Capital gains tax on both long- and short-term capital gains, and securities transaction tax on futures and options were increased
The personal tax announcements by Union Minister of Finance Nirmala Sitharaman lays impetus on three broad areas—the new tax regime, tax on investments, and the simplification of the tax processes. Each of these have some positive and some negative ramifications for taxpayers.
The New Tax Regime
The government is definitely pushing the new tax regime, and the announcements prove that yet again.
The finance minister has increased the standard deduction limit from Rs 50,000 to Rs 75,000 for salaried taxpayers who opt for the new tax regime. The tax slabs have also changed under this regime and the finance minister claims the changes will result in a benefit of Rs 17,500.
However, for individuals for whom the old tax regime is still better, there are no changes or extra benefits. To start with, the standard deduction remains the same at Rs 50,000 since Sitharaman did not mention the old tax regime in her Budget announcement. Plus, the tax slabs remain the same.
Moreover, taxpayers who were expecting the broadening of the deduction limit under popular sections of the Income-tax Act, 1961, such sections 80C and 80D, were in for disappointment.
In fact, in the press conference held after the Budget announcement, she indicated that the old tax regime may be scrapped in the future in the endeavour to simplify the tax system.
The capital gains tax has been increased by a sizeable amount. While long-term capital gains (LTCG) tax has gone up from 10 per cent to 12.5 per cent, short-term capital gains (STCG) tax has gone up by 5 per cent and is now at 20 per cent.
While the culture of investing in the market has increased in India, the additional tax burden is a dampener for most individuals, especially those who are entering the equity markets for the first time. However, the good news is that the tax-free portion on some assets has been increased from Rs 1 lakh to Rs 1.2 lakh for investments held for at least one year.
However, the increase has been rationalised for all the assets, which means the rates may become lower for some. For instance, for real estate, the rate has reduced from 20 per cent to 12.5 per cent, though the indexation benefit has been removed.
On the other hand, the increase in the STCG rate may discourage people from switching too soon, and may put a spanner on trading activities that the market regulator has been cautioning against when it comes to retail investors. Exiting market investments before one year gives rise to STCG liability. The proposal to increase security transactions tax (STT) on futures and options (F&O) of securities to 0.02 per cent and 0.1 per cent, respectively, may also help curb trading in F&Os to some extent.
Simplification
Sitharaman has clearly stated her intention to simplify the tax laws and processes related to it. In fact, she announced a comprehensive review of the Income-tax Act, 1961.
“The purpose is to make the Act concise, lucid, easy to read, and understand. This will reduce disputes and litigation, thereby providing tax certainty to the tax payers. It will also bring down the demand embroiled in litigation,” she said.
It is proposed that this process will be completed in six months.
Along with rationalising capital gains, she has also moved to simplify the tax deducted at source (TDS) regime. Several of the functions have already been digitised, resulting in taxpayer convenience.
Among the most significant of these moves is the attention to resolving pending cases and income tax disputes. Even the reassessment process is proposed to be simplified.
“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,” she said.
This will automatically reduce the number of cases that are reopened for reassessment, lowering the number of tax disputes as well.