Union Budget 2024-25: From TDS, TCS, LTCG To STT—Key Tax Takeaways

Finance Minister Nirmala Sitharaman presented the Union Budget 2024-25 in parliament on Tuesday amid many populist demands from various quarters, from higher deduction and exemption limits to reduced goods and services tax (GST) on insurance and other consumer products. 

While accommodating all the demands may not be possible, the finance minister has tried to provide a balanced budget considering growth, public welfare, and fiscal prudence.  

One of the major focuses of this budget has been on the taxation front. The finance minister has ensured that not only the salaried class but also the pensioners and other demographics, such as farmers, investors, students, etc., have reasons to cheer on income tax.  

Presenting the Budget on Tuesday, the finance minister announced several changes in tax rules while promising to conduct a comprehensive review of the Income-tax Act, 1961. She stressed that her ministry will continue efforts to simplify taxes, improve taxpayers’ services, provide tax certainty and reduce litigation while enhancing revenues for funding development projects. 

Here Are Some Key Tax Highlights  

Tax Deducted At Source (TDS) 

The finance minister proposed to merge two tax exemption regimes for charities into one. Additionally, the policy of 5 per cent tax deducted at source (TDS) on some payments will now be merged into the 2 per cent TDS rate band. The government will also withdraw the 20 per cent TDS rate on the repurchase of units by mutual funds and reduce the TDS rate from 1 to 0.1 per cent for e-commerce operators. The finance minister also said that the credit of tax collected at source (TCS) will be provided in the TDS to be deducted from salary. 

For the ease of taxpayers, Sitharaman also said that her ministry will decriminalise the delay for TDS payment up to the due date of filing statement and provide a standard operating procedure for TDS defaults and simplify and rationalise the compounding guidelines for such offences.

LTCG and STCG  

The finance minister has also raised the exemption limit for long-term capital gains (LTCG) tax from Rs 1 lakh to Rs 1.25 lakh. LTCG has been hiked on all financial and non-financial products from 10 per cent to 12.5 per cent, while short-term capital gains tax (STCG) to attract 20 per cent on certain assets. Also, financial assets held for over a year will be classified as long-term. Also, unlisted financial and non-financial assets will be considered for LTCG if held for two years. 

“Short-term gains on certain financial assets shall henceforth attract a tax rate of 20 per cent, while that on all other financial assets and all non-financial assets shall continue to attract the applicable tax rate,” Sitharaman said during her Budget speech. 

Additionally, unlisted bonds and debentures, market-linked debentures, debt mutual funds irrespective of holding period, however, will attract tax on capital gains at applicable rates. 

Securities Transaction Tax 

Sitharaman also proposed to increase the Securities Transaction Tax (STT) rates on sale of an option in securities from 0.0625 per cent to 0.1 per cent of the option premium, and on sale of futures in securities from 0.0125 per cent to 0.02 per cent of the price at which futures are traded. 

Buy-Back Of Shares  

It is proposed that the income from buy-back of shares by companies be chargeable in the hands of recipient investor as dividend, instead of the current regime of additional income-tax in the hands of the company. Further, the cost of such shares shall be treated as a capital loss to the investor.  

Also read; Budget 2024-25: LTCG Raised To 12.5%, What It Means For You

Other important taxation rules include:

Income From Letting Out Of House Property  

It is proposed that income from letting out of a house or part of the house by the owner, shall not be charged under the head ‘profits and gains of business or profession’ and will be chargeable to tax under the head ‘income from house property’ only. 

Transfer Of Capital Asset  

It is proposed to provide that the transfer of a capital asset, under a gift or will or an irrevocable trust, by an entity other than an individual or a Hindu undivided family (HUF) only, shall be regarded as transfer for the purpose of calculation of capital gain.  

TDS On Payment To A Partner  

It is proposed that payments made by firm to its partner in the nature of salary, remuneration commission, bonus and interest, etc., shall be subject to TDS at the rate of 10 per cent for aggregate amounts more than Rs 20,000 in a financial year. 

TCS On Notified Luxury Goods  

To enable TCS on luxury goods, it is proposed to levy TCS of 1 per cent on notified goods of value exceeding ten lakh rupees.  

TDS On Sale Of Immovable Property  

It is proposed to clarify that where there is more than one transferor or transferee in respect of an immovable property, then such consideration for transfer of the immovable property shall be the aggregate of the amounts paid or payable by all the transferees to the transferor or all the transferors for transfer of such immovable property. 

TDS on Floating Rate Savings (Taxable) Bonds (FRSB) 2020  

TDS is proposed on interest exceeding Rs 10,000 on Floating Rate Savings (Taxable) Bonds (FRSB) 2020 or any other notified security of the Central or state governments. 

Inadmissibility Of Non-Business Expenditure By Life Insurance Companies  

It is proposed to provide that any expenditure which is not admissible under the provisions of section 37 in computing the profits and gains of a business shall be included to the profits and gains of the life insurance business. 

Inclusion Of Taxes Withheld Outside India For Purposes Of Calculating Total Income  

It is proposed to provide that income tax paid outside India by way of deduction is deemed to be income received for the purpose of computing the income of the assessee. 

Excluding income mentioned in section 194J from applicability of section 194C  

It is proposed to explicitly state that any sum referred to in sub-section (1) of section 194J (fees for professional or technical services) does not constitute “work” for the purposes of TDS under section 194C (payments to contractors). 

Claim Of Settlement Amounts As Business Expenditure  

It is proposed to disallow expenses incurred as settlement fees for any contravention of law, as may be notified by the Central Government. 

Reacting to the tweaks in the capital gains structure, Indian equity markets crashed with Sensex falling more than 800 points. The index recovered a bit later to trade around 600 points in the red. 

Comprehensive Review of the Income-tax Act, 1961 

The finance minister also announced a comprehensive revision of the Income-tax Act, 1961, besides revamping the reassessment, search and capital gain tax provisions. “We have taken several measures, including introducing simplified tax regimes, which taxpayers have appreciated. Fifty-eight per cent of corporate tax came from the simplified tax regime in 2022-23. Similarly, as per data, more than two-thirds have availed the new tax regime,” she said. 

The purpose of the review is to make the Act “concise, lucid, and easy to read and understand.” This action, to be completed in six months, is expected to reduce disputes and litigation, provide tax certainty to taxpayers, and reduce the demand embroiled in litigation.