The Government of India has introduced significant amendments to the Income Tax Act, 1961, which will come into effect on 1 October 2024. These changes are aimed at reducing litigation, simplifying tax compliance, and providing clarity to taxpayers. This guidance note highlights the key changes and provides a summary for quick reference.
1. Vivad Se Vishwas Scheme 2024
The Vivad Se Vishwas Scheme 2024 is reintroduced to facilitate the resolution of pending tax disputes through a simplified process, offering reduced interest and penalties for eligible taxpayers.
- Applicability: Tax disputes pending before ITAT, CIT(A), High Courts, and Supreme Court.
- Key Benefit: Settlement with reduced interest and penalties.
This scheme offers an excellent opportunity for taxpayers to settle long-standing tax disputes and avoid prolonged litigation.
2. Mandatory Aadhaar-PAN Linkage
Starting from 1 October 2024, Aadhaar Enrollment IDs will no longer be accepted for PAN-related formalities. Taxpayers must use their Aadhaar number for the following:
- Application for a new PAN.
- Filing income tax returns (ITRs).
This change enforces stricter compliance with Section 139AA of the Income Tax Act, making Aadhaar-PAN linkage mandatory for all individuals.
3. Post Office Small Savings Scheme Updates
Amendments to popular post office schemes, such as Public Provident Fund (PPF) and Sukanya Samriddhi Yojana, will be introduced. These changes include:
- Regularization of multiple PPF accounts held by a single person.
- Allowing Non-Resident Indians (NRIs) to continue investing in PPF.
These updates aim to streamline compliance and enhance the flexibility of these savings schemes.
4. Revised TDS Rates
The government has revised several TDS (Tax Deducted at Source) rates to simplify compliance and reduce tax burdens. Key revisions include:
- TDS on life insurance payouts reduced from 5% to 2%.
- TDS on rent payments by individuals or HUFs lowered from 5% to 2%.
These changes are expected to improve cash flow for taxpayers by lowering the tax deducted upfront on common transactions.
5. Omission of Section 194F – Mutual Fund Transactions
Section 194F, which required TDS on repurchase of mutual fund units, will be omitted from 1 October 2024. This is aimed at simplifying tax compliance for mutual fund investors by eliminating an additional withholding requirement.
6. Credit for TDS/TCS for Salaried Employees – Section 192(2B)
A key benefit for salaried employees will be the ability to claim TDS and TCS credits for income from sources other than salary, such as rent and interest.
- Key Impact: Employers can now factor in TDS and TCS credits for accurate salary deductions, reducing the chances of overpayment and improving cash flow for employees.
This change is expected to simplify tax deductions for salaried employees, minimizing the need for refunds.
7. Introduction of Section 194T – TDS on Payments to Partners
From 1 April 2025, partnership firms will be required to deduct TDS on payments made to partners (such as salary, interest, and commission) under Section 194T.
- TDS Rate: 10% on amounts exceeding Rs. 20,000 per financial year.
This provision improves transparency and ensures tax compliance for payments made to partners.
8. TDS on Immovable Property Sales – Section 194-IA
The government has clarified that TDS on the sale of immovable property will be calculated based on the aggregate transaction value, regardless of the number of buyers or sellers. This change aims to eliminate confusion in real estate transactions, ensuring uniformity in TDS deductions.
9. TDS on Floating Rate Savings Bonds (FRSB) 2020
Effective from 1 October 2024, TDS will apply to interest exceeding Rs. 10,000 earned on Floating Rate Savings Bonds (FRSB) 2020. This aligns the TDS treatment of FRSBs with other fixed-income securities, ensuring uniform tax withholding.
10. Rationalization of Penalties and Refund Procedures
The new rules under the Finance Act (No. 2), 2024, will streamline the penalty and refund processes, providing clear timelines for imposing penalties and a simplified process for issuing refunds.
- Penalty timelines: Defined timelines for imposing penalties.
- Refund process: More efficient refund mechanisms for taxpayers.
These changes are aimed at reducing disputes and ensuring timely refunds.
11. Securities Transaction Tax (STT) on Derivatives
The Securities Transaction Tax (STT) rates on Futures & Options (derivatives trades) will be revised:
- STT on Sale of Options: Increased from 0.0625% to 0.1%.
- STT on Sale of Futures: Increased from 0.0125% to 0.02%.
This change is expected to generate additional revenue and provide more regulation for the derivatives market.
At a Glance – Summary of Key Changes
| Amendment/Provision | Previous Requirement | Revised Requirement | Effective Date |
|---|---|---|---|
| Vivad Se Vishwas Scheme 2024 | N/A | Settlement scheme for tax disputes | 1 October 2024 |
| Aadhaar-PAN Linkage | Aadhaar Enrollment ID allowed | Aadhaar number mandatory for PAN/ITRs | 1 October 2024 |
| TDS on Life Insurance Payouts (Section 194DA) | 5% | 2% | 1 October 2024 |
| TDS on Rent Payments (Section 194-IB) | 5% | 2% | 1 October 2024 |
| Omission of Section 194F (Mutual Funds) | TDS on Mutual Fund repurchase | No TDS | 1 October 2024 |
| Credit for TDS/TCS for Salaried Employees | TDS/TCS credits not fully considered | TDS/TCS credits fully included | 1 October 2024 |
| TDS on Payments to Partners (Section 194T) | N/A | 10% TDS on amounts > Rs. 20,000 | 1 April 2025 |
| TDS on Immovable Property Sales (Section 194-IA) | Buyer-specific deduction | Aggregate deduction | 1 October 2024 |
| TDS on Floating Rate Savings Bonds | No TDS | TDS on interest > Rs. 10,000 | 1 October 2024 |
| STT on Sale of Options | 0.0625% | 0.1% | 1 October 2024 |
| STT on Sale of Futures | 0.0125% | 0.02% | 1 October 2024 |
Conclusion
The amendments effective from 1 October 2024 introduce several compliance and procedural changes. Taxpayers, especially salaried employees, mutual fund investors, real estate participants, and partners in firms, should carefully review these changes to ensure compliance and take advantage of available benefits. These updates aim to reduce litigation, simplify tax procedures, and streamline refund and penalty processes.
