Introduction
On 1st February 2025, we expect this Union Budget 2025 will bring several amendments to the Income-tax Act, 1961, aiming to simplify provisions, reduce compliance burdens, and ensure equitable taxation. Even it is expected that new Direct tax code will be released by the government, but as per me following changes are expected in the upcoming budget:
For Individuals
1. Further simplification of residential status: By dispensing with the status of "Resident but Not Ordinarily Resident" to simplify residential status classification, also Double Taxation Avoidance Agreements are expected to address related complexities.
2. Holding Period of capital assets are expected to change which means, last year, the minimum holding period for long-term capital gains on assets like land and buildings has been reduced to 24 months. It is suggested that this should uniformly apply to other provisions, including Section 50B (slump sale) and Section 54F (reinvestment in residential property)
3. Chapter VI-A Deductions in new scheme: Deductions under Chapter VI-A (except Sections 80CCD(2), 80CCH(2), and 80JJAA) are not available under the new tax regime (Section 115BAC). Permitting these deductions under both regimes would benefit taxpayers and boost economic activity.
4. Few deductions which are common like 80C, 80D and some of the perquisites related to salary have very less upper limits, they should be increased adjusting current inflation
5. Valuation of Perquisite: To simplify taxation u/h salary, it is recommended that the valuation of perquisites be aligned with the actual cost incurred by the employer. This would remove complexities in computations like those for rent-free accommodation.
6. Collaboration of income with spouse as proposed by ICAI:
Joint Tax Slabs:
- Up to ₹6 lakh: No tax
- ₹6-14 lakh: 5% tax
- ₹14-20 lakh: 10% tax
- ₹20-24 lakh: 15% tax
- ₹24-30 lakh: 20% tax
- Above ₹30 lakh: 30% tax
- Basic exemption limit for joint filing: ₹6 lakh, double the current exemption for individual taxpayers.
Revised Surcharge Rates:
- Threshold increased to ₹1 crore.
- ₹1 crore to ₹2 crore: 10%
- ₹2 crore to ₹4 crore: 15%
- Above ₹4 crore: 25%
Standard Deduction:
- Both salaried partners can claim standard deductions under Section 16(ia) separately.
7. Sportsmen and other Tax Rates related to non residents: For non resident sportsmen, an enhanced tax rate of 40% (from 30% currently) should be proposed for incomes exceeding ₹1 crore during a sports season.
8. STT should be reduced as it is a reason for double taxation, or tax on long term capital gains from shares should be restricted to 10% itself, and 12.5% in case of short term capital gain, department tried to maintain uniformity of shares income with other short term assets, in that case STT should be removed.
9. 30% of tax should be introduced on bitcoin ETF
10. Rates of TDS should be simplified and "TDS cash credit" should be implemented on portal similar to that of GST
11. Faceless process should be implemented for lower deduction certificates in TDS
For Corporates
1. Tax Rates and Surcharge: Tax rates under Sections 115BA, 115BAA, and 115BAB might be increased with increase in benefits which are forgone, also increasing corporate surcharges or tax rates will help in enhancing the collections.
2. TDS on Partner Payments, also called partner TDS newly introduces w.e.f 1.04.2025: Section 194T mandates TDS at 10% on salary, commission, or interest payments to partners. This rate is considered high and could be reduced to 5% or rather 1% to reduce cash flow disruptions, or form 15G/15H exemption to be provided in this section for low or no deduction of TDS and small firms should be supported.
3. MSME Payments: Section 43B disallows expenses for delayed payments to MSMEs. It shall be proposed that payments between MSMEs be exempt from disallowance, and an incremental time limit such as providing time till due date of return-filing to be given.
For Charitable Institutions
There should be a stability in regulations following substantial amendments introduced in the Finance (No. 2) Act, 2024, it is hoped that no further changes are made to the taxation framework for charitable trusts to allow institutions to adapt
For Real Estate and Property
1. The determination of annual value should be simplified by eliminating "fair rent" as a parameter with sole focus on municipal value and actual rent is proposed
2. interest deductions should be allowed for borrowings under both the current and old tax regimes as this will encourage institutional funding and aid the sluggish construction industry, more investment funds should be built for infrastructure development
For Partnerships and Succession
Sections 9B and 45(4) are highly complex sections increasing the burden on partners, hence it should be addressed with respect to excess payments to retiring partners or members. However, clarity is needed on whether the fair market value of assets received should be considered the cost of acquisition for future transfers. Alos whether the calculation of depreciation in amalgamations or demergers based on the actual cost incurred by the successor versus the WDV of the predecessor requires proper clarification.
Tax audit related
Penalties for delayed tax audit reports, currently linked to turnover (up to ₹1.5 lakh), should be revised as per me should be increased to a time-based penalty system for fairness and ease of compliance.
Conclusion and Disclaimer
The Income-tax Act, 1961, has become increasingly complex with numerous amendments and judicial interpretations. Hence as per me above proposals should be considered so that individuals as well as corporates are entertained, these are just my expectations in direct tax, there is no official announcement related to the same.
You may add your expectations in the comment below.
The author can be contacted at aman.rajput@mail.ca.in
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