Union Budget 2024: Key Changes in Personal Taxation

By Nitin Baijal, Executive Director, Deloitte India

As expected, several pathbreaking and well-thought-out policies have been unveiled by the Finance Minister, as part of Union Budget 2024. A series of updates to tax and financial policies are set to impact taxpayers, investors and pensioners alike.

Amid high expectations for the new tax regime, the basic exemption limit remains fixed at ₹3,00,000, disappointing many who anticipated an increase. However, the tax slabs have been revamped; the 5% bracket now covers income up to ₹7,00,000, up from ₹6,00,000, and the 10% bracket extends to ₹10,00,000, up from ₹9,00,000.

In a move that provides some relief, the standard deduction for salaried employees will rise from ₹50,000 to ₹75,000. While this falls short of the anticipated ₹1 to 1.5 lakh increase, it still offers marginal relief. This revamped structure, combined with the enhanced standard deduction, is expected to save salaried employees up to ₹17,500 in tax.

Additionally, the deduction on family pensions for retirees will increase from ₹15,000 to ₹25,000, benefiting around 4 crore salaried individuals and pensioners.

In response to the growing concerns about Futures and Options trading and the volatility in the stock markets, the Security Transaction Tax (STT) has been increased to 0.02% and 0.01%, respectively. The intent behind the increase is primarily to reduce such transactions or discourage investors from dealing in F&Os.

To boost retirement savings, employer’s contribution to the National Pension System (NPS) will rise from 10% to 14%, but this change will apply only to those under the simplified tax regime. This increase aims to enhance the retirement security for employees opting for the new tax framework.

In so far as the capital gains transactions are concerned, there was surely an expectation of tinkering with the numbers. Long-term capital gains, previously taxed at 20%, will now be taxed at a reduced rate of 12.5%, starting July 23, 2024, with the elimination of indexation benefits. Additionally, long-term capital gains on the sale of listed equity and equity-oriented mutual funds will face an increased tax rate of 12.5%, vis-a-vis 10%. To provide some relief, the exemption limit on long-term capital gains from the sale of such long-term equity investments has been increased to ₹1.25 lakh per year from ₹1 lakh.

On the other hand, short-term gains on listed shares and equity-oriented mutual funds will now be taxed at 20%, up from the current 15%.

The period of holding of assets has also found a place in the larger scheme of things. Listed financial assets will be considered long-term if held for over a year, while unlisted and non-financial assets will need to be held for at least two years to be considered long-term. Market-linked debentures will continue to attract capital gains tax at applicable rates.

Tax Collection at Source (TCS) provisions have been a matter of worry and debate for the past few years as they impact the cash flow of an individual. In a move aimed at rationalization, employers will now need to account for TCS and Tax Deducted at Source (TDS), under the income tax provisions, on all declared income when calculating TDS under Section 192. This adjustment is designed to ensure accurate tax withholding and alleviate cash flow issues for salaried individuals. 

For those with foreign investments, particularly professionals with stock options and social security schemes abroad, the non-reporting of aggregate movable foreign assets up to ₹20,00,000 will no longer attract penalties under the Black Money Act. This change aims to simplify compliance related to minor foreign assets.

Additionally, the new NPS-Vatsalya plan will allow contributions by parents and guardians for minors, transitioning seamlessly to a regular NPS account upon the child’s majority.

These sweeping changes represent a pivotal overhaul of the tax and financial landscape, aimed at simplifying compliance, delivering significant taxpayer relief, and enhancing investment opportunities. Stakeholders eagerly await these reforms, which promise to reshape financial planning and tax strategy for individuals and businesses alike.

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