With key changes taking effect from October 1, 2024, in TDS, STT rates, and Aadhaar, taxpayers, investors, and individuals need to understand and adjust their tax planning strategies accordingly. Read to know what changes may affect you starting next month
Starting October 1, 2024, several key income tax changes announced in the Union Budget 2024-25 will come into effect. These changes, which are aimed to streamline the tax processes while putting in place stricter guidelines, will impact taxpayers, investors, and businesses alike. Here’s a breakdown of such key changes in rules that you should be aware of:
If you are involved in F&O trading, take note: the Securities and Transaction Tax will increase starting October 1. The government has raised the STT to reduce the speculative activity in the derivative market. Here is what is new:
For Options: The STT on the sale of options will increase from 0.0625 per cent to 0.1 per cent of the premium.
For Futures: The STT on the sale of futures is set to rise from 0.0125 per cent to 0.02 per cent of the trade price.
The change in STT will directly impact the cost of trading in the derivatives markets, especially for high-volume traders.
Starting October 1, the Tax Deducted at Source (TDS) on life insurance payouts will now be reduced from 5 per cent to 2 per cent.
How this would help policyholders? This reduction has been announced to benefit policyholders as it will increase their inflow of a higher amount upon maturity or claim of their life insurance policies. This change will also ensure that a larger portion of the live insurance proceeds remain with the policyholder.
Shareholders participating in the share buybacks will be taxed at their individual level. Previously, companies were taxed on the buyback of shares. However, starting next month any capital gains earned from a share buyback will be taxed directly at the shareholder level similar to dividends.
What does this mean? Well, many investors will now have to account for capital gains keeping in mind the purchase cost of the shares to calculate the taxable amount.
Starting next month, TDS at 10 per cent will be applicable on interest earned from certain central and state government bonds, including floating rate bonds. However, TDS will only be applied if the interest earned in a year is exceeding Rs 10,000. Also, the Floating Rate Savings Bond, among others, will come under the new TDS rule from October 1.
What will be the impact of this? Investors in floating rate savings bonds, among others, will notice TDS deducted from the interest payouts. This would affect the post-tax returns for investors holding these bonds.
Are you someone paying rent that exceeds Rs 50,000 per month? Starting October 1, the TDS rate under Section 194-IB will reduce from 5 per cent to 2 per cent. This change is set to ease the burden on individuals and Hindu Undivided Families (HUFs) paying higher rents, allowing them to retain a slightly larger portion of their income.
From next month onwards, the Aadhaar enrolment IDs will no longer be accepted for applying for a Permanent Account Number (PAN) or filing income tax returns (ITR).
What should you do? Taxpayers need to ensure that they have a valid Aadhaar number to comply with these updated requirements. The changes have been introduced to prevent misuse and duplication of PANs.
Mutual Fund (MF) investors will sigh a breath of relief starting next month. In the Budget 2024-25, the Centre announced the withdrawal of the 20 per cent TDS on the repurchase of MF units from October 1, 2024. Section 194F, which imposed a 20 per cent TDS on the repurchase of MF units will be removed.
What does this mean? For individuals investing in MFs, this means that they will no longer face significant tax deductions when redeeming their MF units.
The Direct Tax Vivaad Se Vishwas Scheme 2024, which is set to launch on October 1, intends to resolve tax disputes by offering an opportunity for taxpayers to settle appeals with the Income Tax Department. According to CA (Dr) Suresh Surana, this scheme is expected to benefit individuals with long-standing disputes in various tax forums, such as the Commissioner of Income Tax (Appeals), the Income Tax Appellate Tribunal, the High Courts, and the Supreme Court.
What will VsV do? The scheme will allow taxpayers to settle their disputes by paying a lower amount if they apply (or have applied) before December 31, 2024. After this date, a slightly higher settlement amount will apply with the deadline yet to be confirmed.
Amount payable by the declarant: Those with appeals filed after January 31, 2020 (but on or before 22 July 2024), will now be required to pay 100 per cent of the disputed tax before the end of 2024, or 110 per cent if paid after January 2025.
Appeal pending at same forum on or before 31 January 2020 will be paying 110 per cent of disputed tax on or before 31 December 2024 and 120 per cent of disputed tax on or after 1 January 2025 but on or before the last date.
What are the exclusions? However, it is important to note that not everyone can benefit from this scheme. Exclusions include cases such as search and seizure, prosecution, undisclosed income/assets located overseas, proceedings under other specified laws being instituted, etc. The scheme is inherently designed to streamline tax litigation and allow taxpayers to resolve their cases with reduced penalties and interest.
What will be the reduced penalty/interest? Appeal filed after 31 January 2020 (but on or before 22 July 2024) will be subjected to a 25 per cent disputed interest/ penalty/fee and 30 per cent if filed on or after 1 January 2025.
Consecutively, 30 per cent of disputed interest/ penalty/fee will be levied for the appeal/revision petition pending at the same forum on or before 31 January 2020. The same for those filed on or after 1 January 2025 it will be 35 per cent.