Presenting the Union Budget 2024-25 in Parliament on Tuesday, Finance Minister Nirmala Sitharaman announced several changes in tax rules while promising to conduct a comprehensive review of the Income-tax Act, 1961. “We will continue our efforts to simplify taxes, improve taxpayer services, provide tax certainty and reduce litigation while enhancing revenues for funding the development and welfare schemes of the government,” Sitharaman said.
As part of the plans, she proposed to merge two tax exemption regimes for charities into one. Additionally, the policy of 5 per cent tax deducted at source (TDS) on many payments will now be merged into the 2 per cent TDS rate. Likewise, it has been decided to withdraw the 20 per cent TDS rate on the repurchase of units by mutual funds. She also proposed to reduce the TDS rate from one to 0.1 per cent on e-commerce operators. The credit of tax collected at source (TCS) is also proposed to be given in the TDS to be deducted from salary.
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As additional relief to taxpayers, Sitharaman said, “I propose to decriminalise 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 defaults.”
Sitharaman also said the government will formulate a standard operating procedure (SoP) for TDS defaults and simplify and rationalise compounding of such offences.
Comprehensive Review of the Income-tax Act, 1961
The finance minister vowed to comprehensively review the Income-tax Act, 1961, and revamp 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.
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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.
Simplifying Reassessment Process
The minister said her ministry would “simplify” the reopening and reassessment provisions to allow the reopening of an assessment beyond three years from the end of the assessment year if the escaped income is Rs 50 lakh or more, up to a maximum period of five years. In search cases, she said, a time limit of six years before the year of search has been proposed, as against the existing time limit of 10 years. She said it is expected to reduce tax uncertainty and disputes.
More Tax Relief
She also announced a slew of other reliefs, such as the withdrawal of the 2 per cent equalisation levy, a hike in the standard deduction for salaried employees to Rs 75,000 from Rs 50,000 under the new income tax regime in FY25, a raise in the deduction limit to 14 per cent from 10 per cent for employers’ contribution to the National Pension System (NPS), and an increase in the tax deduction on the family pension for pensioners to Rs 25,000 from Rs 15,000.
The finance minister said the salaried employees under the new tax regime can now save up to Rs 17,500 annually in taxes due to the changes proposed in the FY25 Budget.
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It was the first Budget of the Modi government’s third term or 3.0, sworn in after the NDA-led alliance defeated the INDIA alliance in the Lok Sabha polls earlier this year.
For Sitharaman, it was her seventh Budget in a row, which made her the first union finance minister to achieve this feat, succeeding Moraji Desai’s record of six times in a row.
On Monday, she tabled the Economic Survey 2023-24 in parliament, which showed that India’s GDP would likely grow between 6.5 per cent and 7 per cent in 2024-25, lower than the 8.2 per cent growth rate estimated for the previous financial year.
