Wider income tax slabs, higher standard deduction make the new tax regime more attractive. Has Budget 2024 made you richer? However, it proposed some changes to make the new tax regime more attractive, without making any changes to the old tax regime
The taxpayers who were hoping the Budget would lower their taxes by increasing deductions under Section 80 or giving more exemptions have been sorely disappointed. The Budget has not made any change in the old tax regime, but proposed some tweaks in the new tax regime to make it more attractive. The Budget may have also increased the tax outgo for many taxpayers by hiking the tax on capital gains and removing the indexation benefit that applied to property,hybrid mutual funds and gold.Changes in new tax regime
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The tax on long-term gains from stocks and equity-oriented mutual funds has been raised from 10% to 12.5% and the tax on short-term gains raised from 15% to 20%. “The increase in tax on long-term capital gains is a big negative. Given the low penetration of financial assets, consistency of taxes always helps in the long run,” says Swarup Mohanty, Vice-Chairman & CEO, Mirae Asset Investment Managers. “The proposal to increase LTCG tax on equities is a dampener. Instead of increasing LTCG tax on equities, the government could have increased the holding period for LTCG tax from one year to three years to incentivise long-term investments,” says Naveen Kukreja, Co-Founder and CEO, Paisabazaar.
Some experts say the proposed change should not worry long-term investors because the 2.5 percentage point hike in LTCG tax will not amount to much. “There is some disappointment over the increase in capital gains tax rates for equities, but there is equalisation of rates across asset classes, which brings a sense of clarity,” says Deepak Shenoy, Founder & CEO, Capitalmind.
However, the real estate industry is in a huddle. The removal of the indexation benefit will be a paradigm shift for investors in real estate. There are fears that it will lead to a greater proportion of cash in real estate deals.
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More NewsChanges in new tax regime
The Budget has widened two income tax slabs and increased the standard deduction from Rs.50,000 to Rs.75,000 under the new regime. These tweaks will help salaried employees in the new tax regime save up to Rs.17,500 (plus cess and surcharges, as applicable) in income tax, Finance Minister Nirmala Sitharaman said in her Budget speech.
The savings in tax due to the change in tax slabs will be more pronounced for the lower- and middle-income groups, but will be negligible for those in the higher income bracket. A taxpayer with a gross annual income of Rs.8 lakh will see his tax liability slashed by 25%, while someone earning Rs.12 lakh a year will pay 16.6% less tax. But those in the higher income brackets will only see a wafer-thin reduction in their tax outgo (see graphic).
The higher standard deduction of Rs.75,000 means anybody with an annual income of Rs.7.75 lakh will not have to pay any tax. Under the new tax regime, a taxpayer with an annual income of up to Rs.7 lakh per year is eligible for full tax rebate under Section 87A.
This is the second change in the slab structure of the new tax regime in as many years. Last year’s Budget had reduced the number of slabs from seven to six. It also extended the standard deduction to the new regime, making it more feasible for taxpayers. “The Ministry is favouring the new tax regime. By adjusting the tax slabs, the new tax regime becomes more attractive, which is likely to result in more taxpayers opting for it,” says Neeraj Agarwala, Partner, Nangia Andersen LLP. In her speech, Sitharaman pointed out that two-thirds of taxpayers had opted for the new tax regime in the previous financial year. “The intention of the change in slabs in the new tax regime is to spur consumption. The government is also giving clear indication that the new tax regime would be the preferred one going forward,” says Mohanty of Mirae Asset.
However, this is also because the new tax regime has been made the default option for computing tax. “If a salaried taxpayer does not inform his employer, he is put under the new tax regime and taxed accordingly,” says Sudhir Kaushik, CEO of tax filing portal TaxSpanner.com. Once in the new regime, the taxpayer can switch to the old tax regime only at the time of filing his tax return.
In a major relief to salaried taxpayers, the Budget has proposed that the tax collected at source (TCS) can be adjusted against the TDS on one’s salary. TCS is applicable on certain expenses, including remittances to foreign countries, expenses in foreign exchange and purchase of luxury cars priced above Rs.10 lakh. Anybody who sends money abroad has to cough up 20% TCS if the amount exceeds Rs.7 lakh.
“This rule posed a challenge for salaried employees, who ended up paying excess taxes for the year,” says Agarwala of Nangia Andersen LLP. Though the TCS was refunded when the taxpayer filed his return, he had to wait for up to 12-15 months for the refund. Someone who sent money abroad in May-June 2024, would have had to wait till July 2025 to file his tax return and get a refund 1-2 months later.
The Budget has proposed that the taxpayer can get theTCS adjusted against the TDS on his salary income. “This will ease the burden on taxpayers who send money to their children studying abroad,” says Amit Maheshwari, Partner, AKM Global.
How much lower will your tax be?
Entry-level and middle-income taxpayers will gain the most from the proposed changes.
Gains the most from proposed change. Tax outgo reduced by 25%.Tax savings lower but still substantial. Tax liability cut by 16.6%.Saves more in absolute terms, but tax liability is cut by only 4.02%.Gains more due to savings in surcharge but tax is down only 1.2%.Higher surcharge means more savings, but tax cut by only 0.5%.Note:All figures are in RS. Tax savings include cess and surcharges
Some other proposals
Rental income head
Rental income from letting out of a house or a portion of it by the owner will be treated as ‘Income from house property’. Earlier, taxpayers used to report rental income under the head ‘Profits and gains of business profession’ to decrease tax liability.
TCS credit for parents
Parents or guardians who invest in their children’s names can now claim credit for any TCS on the investment. The CBDT will be able to set rules for providing TCS credit to individuals other than the collectee.
Gold & silver cheaper
The customs duty on gold and silver has been cut from 15% to 6%, which is likely to result in a fall in price of the metals and increase in demand. High prices of gold had caused a decline of 15% in demand in June.
Foreign assets
There is a penalty of Rs.10 lakh if a resident taxpayer fails to report foreign assets in his ITR. Many Indian employees in MNCs, who are given ESOPs, and investors holding foreign companies, end up making this mistake. The Budget has proposed that there should be no penalty if the value of the undisclosed foreign asset is up to Rs.20 lakh.
Tax reassessment
Income tax assessment can be reopened beyond three years from the end of assessment year provided the undisclosed income exceeds Rs.50 lakh. The Budget also also imposed a five-year limit on time that the income tax file may be opened for reassessment. Even in search cases, a time limit of six years before the year of search, as against the existing 10 years, is proposed.
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This story originally appeared on: India Times - Author:Faqs of Insurances
