Changes in Income Tax under the Interim Union Budget that can affect you

The Union Budget acts as a plan for the country to reach great heights of success and lead a path to a bright future for all its citizens. It includes various new laws and changes to the existing laws to propel the country to new levels of greatness. There are various changes in the Income tax that will all be in the effect by the end of this year with the aim to better facilitate the financial administration of the country. The various changes in the Income tax of the Country include :

1. Changes in the Tax Slabs for Personal Income Tax in the New Tax Regime under section 115 BAC:

There are various changes in the tax slabs of the new tax regime. These changes are done with hope of providing relief to the youngsters and people belonging to lower income group that choose to file their tax under the new tax regime.Earlier new tax regime tax slabs were:

Revised new tax regime tax slabs are:

These changes in the tax slabs are in effect from the assessment year 2025-2026. These change are provided under the proposed clause (2) of sub section (1A) of section 115 BAC of the act. This will result in decrease in taxable obligation of a salaried employee upto ₹ 17,500 in income tax.

2. Increase in amount of standard deduction for salaried employees from ₹ 50000 to ₹ 75000

There has been an increase in the standard deduction in clause (ia) of Section 16 for salaried employees. Earlier the Act provides deduction of fifty thousand rupees or the amount of the salary, whichever is less. Now, the Act provides deduction of seventy five thousand rupees or the amount of the salary, whichever is less.

This amendment will be in effect on 1 April 2025, and will be applicable to assessment years 2025 – 26 and more.

3. Increase in a tax deduction from family pensions for taxpayers from ₹ 15000 to ₹ 25000

There has been an increase in the deduction from family pensions in clause (iia) of Section 57 for retired and the elderly. Earlier the Act provides tax deduction of fifteen thousand rupees or one thirdthe amount of the salary, whichever is less. Now, the Act provides deduction of twenty-five thousand rupees or one third the amount of the salary, whichever is less. An amendment has been passed in the clause (iia) of Section 57 to provide changes in the case where this income tax is computed under clause (ii) of sub-section (1A) o Section 115BAC of the act.

This change will be in effect on 1 April 2025, and will be applicable to assessment years 2025 – 26 and more.

4. Increase in the amount allowed as a deduction to non-government employers for employer contribution to a pension scheme referred under Section 80CCD from 10% to 14%

There has been an amendment under sub-section (2) of Section 80CCD of the Act to explained that where such a contribution has been made by the other employer (not being the central government or state governement), the pemployer is allowed the deduction of amount not exceeding to 14% of the employee’s salary.

There has been as increase only in the case of employee’s salary which is chargeable to tax under sub-section (1A) of Section 115BAC of the Act.

This change will be in effect on 1 April 2025, and will be applicable to assessment years 2025 – 26 and more.

5. Reduction in corporate tax rate applicable to foriegn companies from 40% to 35%

In order to invite more foriegn companies to perform their activities in the indian economy the government of India has reduced the corporate tax of the  foriegn companies from 40% to 35% . This change will lead to improved tax amount in the long term and will lead betterment of the indian economy. This change in the tax rate is applicable on income other than income chargable at special rates, which are clearly specified under sections of Chapter XII of the Act.

This change will be in effect on 1 April 2025, and will be applicable to assessment years 2025 – 26 and more.

6. Rationalisation and simplification of Taxation  of Capital Gains holding period

The proposal has been made to have only 2 holding periods to determine if the capital gains are for short term or for long term. ie, 12 months and 24 months.

According to amendment in clause (42A) of Section 2 of the Act, the holding period of all listed securities, will be 12 months, and for all other assets, the holding period will be 24 months.

This change will be in emmidiate effect on 23 July 2024, and will be applicable to assessment years 2025 – 26 and more.

7. Rationalisation and simplification of Taxation of Short term capital gains and long term capital gains

Under the provisions made under Section 111A of the Act on various short term assets such as STT-paid equity shares, units of equity-oriented mutual funds, and units of business trust will be charged at 20% interest rate instead of ealrier practised 15% rate. Other short term assets will be charged as per their previously practised taxation rates.

The taxation rate of long term capital gains assets has been changed to 12.5%. There were various rates on different categories of assets which have been simplified to one taxation rate. The rate of STT-paid listed equty shares, equity-oriented funds, and business trusts under section 112A was 10% and 20% for other assets with indexation benefit. These changes in taxation are accompanied by 1.25 Lakh exemption on long term capital gains under section 112A on STT-paid equity shares, units of equity-oriented funds, and business trusts, which was previously 1 Lakh.

For bonds and debentures, the rate of taxation was previously 20% without indexation which has been changed to 12.5%, this rate is applicable on bonds and debetures, whether short term or long term.

This change will be in emmidiate effect on 23 July 2024, and will be applicable to assessment years 2025 – 26 and more.

8. Changes in taxation rates of Securities Transaction Tax

Currently, the rates of taxation of STT on the sale of option in  securities is 0.0625% of the option premium, and on the sale of future securities is 0.0125% of the price at which the futures is traded.

The previous rate of rate of tax of STT (Securites Transaction Tax) of on delivery trades in equity shares is ) 0.1% on both sale and purchase. While on the sale of option of securities, the rate of taxation is 0.125% of the intrinsic value and is payable by the purchaser.

The government of India has proposed the increase in Securities Transaction Tax on slae of option in securities from 0.0625% to 0.1% of the option premium and 0.0125% to 0.02% on the sale of futures.

This change will be in emmidiate effect on 1 October 2024, and will be applicable to assessment years 2025 – 26 and more.

9. Exclusion of certain sums under section 194C and 194J

The rates of taxation of TDS under section 194C are 1% when making payment to individual and 2% otherwise, Whereas the rates of taxation of 194J are 2% and 10% respectively. Recently there have been various instances where due to there being no proper definition of which rates to apply on various heads in 194J, many taxpayers have deducted tax under 194C at a lower TDS rate, when they should have deducted tax under 194J. To prevent this practise from continueing, government of India has made provisions of definaitions of 194J, clearly defining the situations in which 194J and 194C are appplicable.

This change will be in emmidiate effect on 1 October 2024, and will be applicable to assessment years 2025 – 26 and more.

10. Revision of TDS rates

There have been changes in the various TDS rates to better facilitate the taypayers.

11. Better facility of credit for TCS and TDS deducted by Salaried employees

It has been oberved that the credit of TCS paid should be allowed while computing tax to be paid from the salary income of the employees, as this will reduce the cash flow problems for the employees. Futhermore, all the TDS amount should be taken into account while deducing tax for salary income. If the TCs or other tax is not tken into account, it shall be claimed as a refund by the employee, which futher adds to the compliance process of the company.

In order to better aid the complaince process, it is proposed that subsection (2B) of section 192 shall be amended to expand the scope of the applicability of thge said subsection to include any tax deducted or collected under the provision under the provisions of Chapter XVII-B or Chapter XVII-BB.

This change will be in emmidiate effect on 1 October 2024, and will be applicable to assessment years 2025 – 26 and more.

12. Angel tax to be abolished by 1 April 2024

According to 2012 Finance Act, a new clause (viib) was inserted in subsection (2) of section 56 to explain tht a company, which public is not relatively interested in, recieves in past year, consideration for issue of shares, on value that exceeds the face value of shares, then the amount recieved will be liable to income tax under the head of ‘income from other sources’.

The government of India has decided to set provisions for clause (viib) of subsection (2) of Section 56 of the Act. The amanedment to clause (viib) of subsection (2) of section 56 of the act that the provisions of this clause shall not apply form the assessment year 2025-26.

This change will be in emmidiate effect on 1 April 2024, and will be applicable to assessment years 2025 – 26 and more.

13. TCS under sub-section (1F) of Section 206 on luxury goods

The current provisions of Section 206C of the act states the collection of TDS o the business of trading of alcoholic liquor, forest produce, scrap etc. Subsection (1F) explaines that any person bieng a seller that recieves consideration for on the sale of motor vehicle of the value exceeding ten lakh rupees, is laible to collect tax from the buyer, equal to 1% of the sale consideration, as income tax.

A proposal is passed to amend sub-section (1F) of Section 206C to also levy on any other good of value exceeding 10 Lakh rupees, as to be notified by central government. Such goods will be considered under the category of luxury goods.

This change will be in emmidiate effect on 1 January 2024, and will be applicable to assessment years 2025 – 26 and more.

14. Withdrawal of Equalization Levy

The application of 2% equisition levy is topic of confusion amongs taxpayers. Therefore it has been proposed that the exquisition levy of 2% which was applicable on consideration recieved on ecommerce supply of goods and services shall be discontiued after 1st August 2024.

Any service provided under sub-section (50) of section 10 was excempt from exquisition levy.

Further more any income recieved from e-commerce supply or services shall fall nder the ambit of clause (50) of section 10 of the act.

This change will be in emmidiate effect on 1 August 2024, and will be applicable to assessment years 2025 – 26 and more.