Introduction
On July 23, 2024, Finance Minister Nirmala Sitharaman presented her seventh consecutive budget for the fiscal year 2024-25. This budget, the first by the newly elected government, focuses on nine priorities, including productivity in agriculture, employment, urban development, and next-generation reforms. This article breaks down the major direct tax proposals in the Finance Bill 2024 into simple, easy-to-understand language.
Key Changes in Income Tax Rates Under the New Regime
Existing Tax Rates for AY 2024-25:
| Total Income (Rs.) | Tax Rate |
|---|---|
| 0-3,00,000 | Nil |
| 3,00,001-6,00,000 | 5% |
| 6,00,001-9,00,000 | 10% |
| 9,00,001-12,00,000 | 15% |
| 12,00,001-15,00,000 | 20% |
| Above 15,00,000 | 30% |
Proposed Tax Rates for AY 2025-26 Onwards:
| Total Income (Rs.) | Tax Rate |
|---|---|
| 0-3,00,000 | Nil |
| 3,00,001-7,00,000 | 5% |
| 7,00,001-10,00,000 | 10% |
| 10,00,001-12,00,000 | 15% |
| 12,00,001-15,00,000 | 20% |
| Above 15,00,000 | 30% |
Reduction in Corporate Tax for Foreign Companies
Tax Rate Reduction:
| Particulars | Existing Rate | New Rate |
|---|---|---|
| Tax on income other than special rate income | 40% | 35% |
Increased Standard Deduction and Family Pension Deduction
For Salaried Individuals:
| Particulars | Existing (AY 2024-25) | Proposed (AY 2025-26) |
|---|---|---|
| Standard deduction | Rs. 50,000 | Rs. 75,000 |
For Family Pension:
| Particulars | Existing (AY 2024-25) | Proposed (AY 2025-26) |
|---|---|---|
| Family pension deduction | Rs. 15,000 or 1/3rd | Rs. 25,000 or 1/3rd |
Enhanced Pension Scheme Contribution Deduction
For Non-Government Employees:
| Particulars | Employer | Employee |
|---|---|---|
| Employer's contribution to NPS | Allowed up to 14% of salary | Allowed up to 14% of salary |
Taxation on Share Buy-Back by Companies
Effective from October 1, 2024:
- Payments made by domestic companies for buying back shares will be treated as dividends and taxed accordingly.
- No deductions for expenses will be allowed against this dividend income.
Rationalization of TDS Rates
Reduced TDS Rates (Effective from 01/10/2024):
| Section | Present Rate | Proposed Rate | Effective Date |
|---|---|---|---|
| 194D | 5% | 2% | 01/04/2025 |
| 194DA | 5% | 2% | 01/10/2024 |
| 194G | 5% | 2% | 01/10/2024 |
| 194H | 5% | 2% | 01/10/2024 |
| 194-IB | 5% | 2% | 01/10/2024 |
| 194M | 5% | 2% | 01/10/2024 |
| 194O | 1% | 0.1% | 01/10/2024 |
Illustrative Changes
Example:
Before Amendment (31st March 2024):
- A company gifts shares worth Rs. 10,00,000 to a trust. No capital gains tax is payable.
After Amendment (1st April 2024):
- A company gifts shares worth Rs. 10,00,000 to a trust. Capital gains tax is payable on the market value of the shares.
Summary of Key Changes
Income Tax Rates:
- Simpler and potentially less taxing for middle-income groups.
Corporate Tax Reduction:
- Encourages international investment by lowering tax rates for foreign companies.
Standard Deduction Increase:
- Benefits salaried individuals and those receiving family pensions.
Tax on Share Buy-Backs:
- Changes the tax implications by treating buy-back payments as dividends.
TDS Rate Rationalization:
- Reduces the tax burden and simplifies compliance for various payments.
Conclusion
The Union Budget 2024-25 introduces several changes aimed at simplifying the tax structure, reducing the tax burden on individuals and businesses, and ensuring fair taxation practices. These amendments, effective from various dates, reflect the government's focus on boosting economic growth while maintaining tax equity.
