The Finance Budget for FY2024-25 introduced several key updates to India’s income tax framework. These changes affect tax slabs, deductions, capital gains, and compliance measures. Whether you’re a salaried employee, an investor, or a business owner, understanding these limits and updates is crucial for effective tax planning. With the advance tax due date approaching on 15th March, here’s a quick rundown:
1. Revised Tax Slabs & Enhanced Deductions
Under the Old Regime
- Tax Slabs:
- Up to ₹2.5 lakh: Nil
- ₹2.5 lakh to ₹5 lakh: 5%
- ₹5 lakh to ₹10 lakh: 20%
- Above ₹10 lakh: 30%
- Standard Deduction:
- Salaried/Pensioners: ₹50,000 (₹15,000 for family pensioners)
- Other Deductions:
- Common limits such as Section 80C remain at ₹1.5 lakh.
Under the New Regime
- Revised Tax Slabs:
- ₹3 lakh to ₹7 lakh: 5%
(Previously, the 5% rate applied up to ₹6 lakh.) - ₹7 lakh to ₹10 lakh: 10%
- ₹10 lakh to ₹12 lakh: 15%
- ₹12 lakh to ₹15 lakh: 20%
- Above ₹15 lakh: 30%
- ₹3 lakh to ₹7 lakh: 5%
- Enhanced Standard Deduction:
- Salaried/Pensioners: ₹75,000 (increased from ₹50,000)
- Family Pensioners: ₹25,000 (increased from ₹15,000)
- NPS (Employer Contribution) Deduction:
- New Regime: Increased from 10% to 14% of salary
- Leave Encashment Exemption:
- Non-Government Employees: Raised from ₹3 lakh to ₹25 lakh
Note: Taxpayers can opt between the old and new regimes each year. The new regime is now the default, so if you wish to claim traditional deductions (like those under Section 80C, 80D, etc.), you must actively choose the old regime.
2. Capital Gains Tax Overhaul
Long-Term Capital Gains (LTCG)
- Uniform Rate: A flat 12.5% tax rate (without indexation) is now applicable across asset classes.
- Exemption Limit for Listed Equities: Increased from ₹1 lakh to ₹1.25 lakh per year.
- Other Assets (property, gold, debt, etc.): Taxed at 12.5% without indexation, instead of 20% with indexation benefit earlier. For assets acquired after the effective date, indexation will no longer apply.
Transitional rule: For residential house property bought on or before July 22, 2024, sellers (resident individuals/HUF) can choose between the old method (20% with indexation) or new method (12.5% without indexation) for computing LTCG tax. Properties purchased from July 23, 2024 onward will strictly follow the 12.5% no-indexation rule.
Short-Term Capital Gains (STCG)
- For Listed Equities & Equity Mutual Funds:
- Now taxed at 20% (up from 15%).
- Other Assets:
- STCG continues to be taxed as per the applicable normal slab rates.
These changes aim to simplify calculations and provide a consistent tax rate across various asset types.
3. Additional Notable Changes
- Abolition of Angel Tax for Startups:
- Investments in eligible startups will no longer trigger the additional “angel tax,” easing the fundraising process.
- Mandatory PAN-Aadhaar Linking:
- Ensure your PAN is linked with Aadhaar. Failure to link results in an inoperative PAN, which can affect return filing and lead to higher TDS deductions.
- Timely Payment Requirement:
- It is crucial to pay any outstanding taxes on time to avoid interest charges. Delayed payments will attract interest, increasing your overall liability.
- TCS on Foreign Remittances:
- For amounts above ₹7 lakh per year, TCS on outward remittances under the Liberalised Remittance Scheme has increased to 20% (up from 5%).
- Note: Remittances for education or medical purposes remain subject to lower rates.
- Other Provisions:
- RBI 7.15% Bonds: Interest from these bonds will now have TDS deducted similar to bank fixed deposits.
- Non-ULIP Life Policies: For policies issued after April 1, 2023, maturity proceeds become taxable if annual premiums exceed ₹5 lakh.
4. What This Means for You
These changes are designed to streamline tax calculations and provide greater benefits for many taxpayers. However, they also require careful review of your financials:
- Choose Wisely: Evaluate whether the new or old regime best suits your situation.
- Plan Capital Gains: Adjust your investment strategy to leverage the uniform LTCG rate and exemption limits.
- Ensure Compliance: Make sure your PAN is active and remit any due taxes on time to avoid unnecessary penalties.
For tailored advice on how these updates impact your personal tax situation, please feel free to reach out to our team.