Budget 2024 & Individual Taxpayers

As you are aware that every year Central Government put its "Statement of Income & Expenditure", which we called "Budget" of the year. A " Budget" is a plan of income and expenditure of government during a specified period of time, generally it is one year. The government planned its expenditure on the basis of expected income it going to receive from different sources.

Being a taxpayer our expectations from the government is always high and we expect that the government will provide some relief by way of increase in deductions or increase threshold limit etc. The government has already given various exemptions /deductions to reduce our taxes.

Many middle-class taxpayers eagerly anticipate an increase in the standard deduction and the basic exemption limit in Budget 2024. They hope that this change will help reduce their overall tax burden, allowing them to retain more disposable income.

The Hon'ble Finance Minister has presented Union Budget ,2024 on 23rd July, 2024 and has announced some relief measures for Salaried and Individuals. The Finance Minister has announced that the Government will review provisions of Income tax Act, 1961 to find more ways to give relief to taxpayers.

The Finance Minister has announced various reliefs in Direct Taxes Regime such as increase in Standard Deduction from Rs. 50,000 to Rs. 75,000, Change in Slab Rates of taxation in new tax regime, reduction in payment of Capital Gain Tax from 20% to 12.5% and has removed indexation benefits, etc.

The main focus of Budget 2024 is on Infrastructure Development, Youth Employment, Woman Empowerment, Security and development of the manufacturing industry as well as taking steps for ease of doing business in India.

LET'S DISCUSS

1. LTCG, STCG holding periods for capital gains calculation of equity, property, gold, financial, non-financial assets changed in Budget 2024:

The Budget 2024 has proposed to rationalise the holding periods for different asset classes for the purpose of capital gains taxation calculation. The new proposals says that there will be only two holding periods for all asset classes to determine whether the gains are Short-Term or Long-Term Capital Gains.

The two holding periods will be.

i) For all listed securities, the holding period is proposed to be 12 months and

ii) For all other assets, it shall be 24 months.

iii) The units of listed business trust will now be at par with listed equity shares at 12 months instead of earlier 36 months.

iv) The holding period for bonds, debentures, gold will reduce from 36 months to 24 months.

v) For unlisted shares and immovable property, it shall remain at 24 months.

Minimum Holding Period as proposed are given below

PLEASE NOTE THAT:

Till FY 2022-23, the benefit of LTCG taxation along with the indexation benefit was available on debt mutual funds. However, the rules for taxation of debt mutual funds were changed from April 1, 2023. Any new investment made in the specified debt mutual funds from April 1, 2023, are not eligible for LTCG taxation along with the indexation benefit.

The benefit of LTCG with indexation benefit on units of debt mutual funds is not available if the domestic equity investment of the mutual fund does not exceed 35%. The gains from the sale of units of above-mentioned debt mutual funds will be taxed at the income tax slabs applicable to an individual's income. Earlier, these long-term gains were taxed at income tax rate of 20% with indexation benefit.

As a relief for investments made till March 31, 2023 (FY 2022-23), indexation benefit is still available for the above-mentioned mutual funds.

2. NPS contribution deduction limit for employer in private sector raised from 10% to 14% of the employee's basic salary.

NPS contribution limit for employer in private sector raised from 10% to 14% of the employee's basic salary. For both private and public sector employees the deduction limit has been raised from 10% to 14%. Earlier this deduction was 10% for private sector employees and 14% for government employees.

All these benefits are available on the new tax regime only. "Employees opting for new tax regime will now get higher deduction up to 14% of basic salary for contribution made to NPS by the employer on employee's behalf under Section 80CCD (2).

Tax benefit on investing in NPS

As per current income tax laws, the tax benefit on investing in the National Pension System (NPS) depends on the tax regime chosen by the taxpayer in the relevant financial year.

The old tax regime allows three deductions under the Income-tax Act, 1961. The three deductions can be claimed under Sections 80CCD (1), 80CCD (1B) and 80CCD (2).

The new tax regime allows only one deduction under the Income-tax Act, 1961 which is the deduction under Section 80CCD (2) i.e. NPS deduction by employer @14% of Basic Salary of the employee.

3. Indexation benefit on sale of property removed; new LTCG rate of 12.5% announced for capital gains on sale of property.

The budget 2024 announced the removal of indexation benefit available on sale of property. Due to this many people who sell their property will now not be able to inflate their purchase price and reduce their capital gains.

Prior to the announcement the long-term capital gains arising from sale of property was taxed at 20% within indexation benefit. Now as per the Budget documents, the new LTCG tax rate of 12.5% without indexation benefit will be applicable for capital gains on sale of property.

Indexation benefits are not available in case of Capital Gain Tax, but your LTCG tax has been reduced from @20% to @12.5%, a big relief to taxpayers.

Example to understand this, for instance MR. A bought a property with Rs 25 lakh in FY 2002- 2003. He sells the property in FY 2023-2024 for Rs 1 crore. As per the existing rules, the purchase price of Rs 25 lakhs needs to be inflated with Cost Inflation Index (CII) numbers notified by the Income tax department.

However, once the new rule comes into effect there will be no need to inflate the purchase price. A taxpayer will calculate the capital gains by directly reducing the purchase price from the sale

PLEASE NOTE THAT: for rationalization of rate to 12.5%, indexation available under Second proviso to section 48(2) is proposed to be removed for calculation of any long-term capital gains which is presently available for property, gold and other unlisted assets.

What is Cost Inflation Index?

Every fiscal year, the income tax department publishes a Cost Inflation Index (CII) to be used in calculating indexation benefits. This figure is used to compute the inflation-adjusted cost of a long-term capital asset. To determine the taxable capital gain, the inflation-adjusted acquisition cost is removed from the asset's sale price. However, indexation benefits are only available for specific assets.

For the current financial year 2024-25 (AY 2025-26), the Central Board of Direct Taxes (CBDT) has notified the CII as 363. The notification was issued on May 24, 2024. The CII number for FY 2023-24 (AY 2024-25) was 348.

The inflation-adjusted purchase price of certain assets sold between April 1, 2023, and March 31, 2024, will therefore be determined by using CII 348 when filing income tax returns. The following year, CII 363 will be used to determine the inflation-adjusted purchase price of assets sold in current FY 2024-25 (AY 2025-26) - between April 1, 2024, and March 31, 2025.

4. Securities transaction tax (STT) on F&O hiked to 0.02% and 0.1%.The 2024 budget has increased the securities transaction tax (STT) on Futures & Options (F&O) of securities to 0.02 percent and 0.1 percent respectively and income receipts from share buybacks would be taxed in the hands of beneficiaries.

STT on F&O increased

• Futures up from 0.0125% to 0.02%
• Options up from 0.0625% to 0.1%

5. Standard deduction hiked to Rs 75000 in new tax regime.

Finance minister has announced a hike in the standard deduction amount in new tax regime hiked to Rs 75000 in Budget 2024.

Also, standard deduction limit for family pensioners have been hiked to Rs 25,000 from Rs 15,000.

A hike in standard deduction would mean more tax savings for salaried individuals and pensioners. The standard deduction has been hiked for the first time after five years. Last time, the standard deduction was hiked to Rs 50,000 in interim budget 2019 (effective from April 1, 2019).

Currently, standard deduction of Rs 50,000 is available under new as well as old tax regime. The benefit of standard deduction is available for those who have salary or pension income. Hence, only salaried people and pensioners are eligible to claim this deduction.

6. Capital gains exemption limit hiked to Rs 1.25 lakh.

The finance minister Nirmala Sitharaman has proposed following changes in the capital gains taxation regime:

1. Short term capital gains on certain assets will attract 20% and all other on financial and non-financial assets will be taxed at income tax rate applicable

2. Hike in the limit capital gains exemption limit to Rs 1.25 lakh per year.

3. LTCG on specified certain assets will be hiked to 12.5%

4. Unlisted bonds, debt mutual funds will continue to be taxed at applicable tax rate.

According to Memorandum of the Finance Bill 2024, "The taxation of capital gains is proposed to be rationalized and simplified. There are three components to this simplification.

i) Firstly, it is proposed that there will only be two holding periods, 12 months and 24 months, for determining whether the capital gains are short-term capital gains or long-term capital gains.

ii) For all listed securities, the holding period is proposed to be 12 months and for all other assets, it shall be 24 months.

Accordingly, amendment is proposed in clause (42A) of section 2 of the Act. 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 under provisions of section 111A of the Act 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% as the present rate is too low and the benefit from such low rate is flowing largely to high-net-worth individuals. Other short-term capital gains shall continue to be taxed at applicable rate.

Memorandum further adds, "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 categories 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 section 112. However, an exemption of gains up to 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 up to 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.

SECTION 112A OF THE INCOME TAX ACT, 1961

The following conditions apply for availing the benefit of the concessional rate under section 112A of Income-tax Act,1961:

1. The securities transaction tax (STT) has been paid on the acquisition and transfer of an equity share of a corporation.

2. The STT was paid when the asset was sold in the case of units of an equity-oriented fund or units of a business trust.

3. The securities should be long-term investments.

4. No deduction under Chapter VI A is available for such long-term capital gain.

5. A rebate under section 87A cannot be claimed in respect of long-term capital gain tax due under section 112A.

6. The Capital Gain is more than Rs. 1.0 Lakhs (This limit now increased to Rs. 1.25 Lakhs).

7. New income tax slabs announced in new tax regime in Budget 2024.

The new income tax slabs announced in the Budget 2024 are as follows: Let's Calculate Tax Salary of Mr. A on Rs. 15,00,000/-

This will lead to savings up to Rs 17,500 for taxpayers opting for a new tax regime. Additionally, standard deduction limit has been hiked to Rs 75,000 from Rs 50,000 in new tax regime only.

For family pensioners, the standard deduction limit has been hiked to Rs 25,000 from Rs 15,000 currently.

8. New NPS scheme for minors announced in budget 2024: Parent can plan pension for their kids which will be transferred to them once they attain majority.

The Budget 2024 has announced the National Pension Scheme for Minors, dubbed NPS Vatsalya. This plan will be converted to normal NPS once the child becomes an adult, i.e., attains 18.

What is NPS Vatsalya?

NPS Vatsalya is a plan for minors where contribution can be made by parents and guardians. The scheme will be converted to regular NPS once the child attains the age of 18.

What is NPS

NPS was introduced by the Central Government to help the individuals have income in the form of pension to take care of their retirement needs.

The Pension Fund Regulatory and Development Authority (PFRDA) regulates and administers NPS under the PFRDA Act, 2013.

Who is eligible for NPS

You are eligible to open your NPS account if you are a citizen of India whether resident, non-resident or an Overseas Citizen of India, if you fulfil the following conditions: You should be between 18 and 70 years of age as on the date of submission of your application to the Pop / Pop-SP, or online through e-NPS.

CONCLUSION

The government is going to review provisions of Income Tax Act, 1961. The important relief available to an individual taxpayer are.

1. The holding period of Capital Assets are harmonized, and government proposed only two types of holding periods such as

a) 12 months for listed securities and for other assets it's 24 months.

2. The NPS contribution limit of private sector employees have been increased from @10% of Basic Salary to @14% same as in case of government employees.

3. The Indexation Benefits for calculation of Long-Term Capital Gain has been removed and government has reduced Capital Gain Tax from @20% to @12.5% (without indexation).

4. The STT on F&O has been increased to 0.02% from 0.01%.

5. The Standard Deduction for Salaries Employees has been increased from Rs. 50,000 to Rs. 75,000.

6. The Capital Gain Exemption limit under Section 112A has been increased from Rs. 1.0 Lakhs to Rs. 1.25 Lakhs, it means that there is no Capital Gain Tax on sale of listed securities on which STT has paid and gain not exceed Rs. 1.25 Lakhs.

7. Now NPS Account can be opened in the name of minor child.

8. In this Budget will focus on employment, skilling, MSMEs, and the middle class for the full year and beyond -- Prime Minister's package of 5 schemes and initiatives aimed at facilitating employment, skilling, and other opportunities, benefiting 4.1 crore youth over a 5-year period, with a central outlay of Rs. 2 lakh crores.

9. Govt to offer education loan of up to 10 lakhs to eligible individuals.

10. Budget 2024 announces employment-linked incentives based on enrollment into EPFO. It will focus on first time employee and offer one month wage for all employees in the formal sector.

11. 3 crore additional houses under PM Awas Yojana have been announced

12. States urged to moderate stamp duty charges for property especially purchased by women.

DISCLAIMER: The article presented here is only for sharing information with readers. The views expressed here are of personal nature, shall not be considered as professional advice. In case of necessity do consult with tax professionals.