Union Finance Minister Nirmala Sitharaman has unveiled the Union Budget for the fiscal year 2024-25, detailing the financial roadmap and allocations for the current year, while proposing major changes to the Income Tax and Direct Tax Regime.
This marks the first full budget from the Modi 3.0 government and the seventh consecutive budget presented by the finance minister. In her Budget speech for the fiscal year 2024-25, Finance Minister Nirmala Sitharaman also highlighted the significant benefits brought about by the Goods and Services Tax (GST).
Major Direct and Income Tax Changes Announced in Budget 2024-25
In the recent Budget 2024-25 speech, the Finance Minister announced significant changes to direct and income tax policies aimed at simplifying taxation, improving taxpayer services, and reducing litigation. The measures are designed to provide tax certainty and boost revenues for development and welfare schemes.
Simplification and Taxpayer Services
The Finance Minister emphasised the government’s ongoing efforts to simplify the tax system. Notable achievements include the introduction of simplified tax regimes for corporate and personal income tax, which have been well-received by taxpayers. In the financial year 2022-23, 58% of corporate tax and over two-thirds of personal income tax were collected under the new regimes.
Comprehensive Review of the Income-tax Act, 1961
A comprehensive review of the Income-tax Act, 1961, was announced, aiming to make the Act more concise and easier to understand. This is expected to reduce disputes and litigation, providing greater tax certainty for taxpayers. The review is slated to be completed within six months.
Key Measures in the Finance Bill
Income Tax Slab Changes for New Regime
The New Slabs in the New Regime in FY2025,
From 0-3 Lakh – Nil
3-7 Lakh – 5%
7-10 Lakh – 10%
10-12 Lakh – 15%
12-15 Lakh – 20%
If income is more than 15 Lakh – 30%
Standard Deduction Increase (Only in New Regime)
– Increased from Rs. 50,000 to Rs. 75,000.
– Deduction of Family pension 15K to 25K
Charities and TDS Simplification:
– The two tax exemption regimes for charities will be merged.
– The 5% TDS rate on many payments will be reduced to 2%.
– The 20% TDS rate on mutual fund repurchases will be withdrawn.
– The TDS rate on e-commerce operators will be reduced from 1% to 0.1%.
– Decriminalisation of TDS payment delays up to the due date for filing statements.
Reassessment Simplification:
– Assessments can only be reopened beyond three years if the escaped income is ₹50 lakh or more, with a maximum period of five years.
– In search cases, the time limit will be reduced from ten years to six years.
Capital Gains Simplification along with Rate Hikes:
– Short-term gains on certain financial assets will be taxed at 20%.
– Long-term gains on all assets will be taxed at 12.5%.
– The exemption limit for capital gains on certain financial assets will be increased to ₹1.25 lakh per year.
– Listed financial assets held for over a year will be classified as long-term, while unlisted financial assets and all non-financial assets must be held for at least two years.
Enhanced Taxpayer Services
The government plans to digitise all major taxpayer services under GST and most services under Customs and Income Tax. Over the next two years, all remaining services, including rectifications and order implementations, will be made paperless.
Litigation and Appeals
Efforts to reduce the pendency of appeals have shown positive results, and the government plans to deploy more officers to expedite the backlog of first appeals. The Vivad Se Vishwas Scheme, 2024, is proposed to resolve certain income tax disputes. Additionally, the monetary limits for filing appeals in Tax Tribunals, High Courts, and the Supreme Court will be increased.
International Taxation
To reduce litigation and provide certainty in international taxation, the scope of safe harbour rules will be expanded, and the transfer pricing assessment procedure will be streamlined.
These changes are expected to enhance tax compliance, provide greater certainty to taxpayers, and boost government revenues for development and welfare programs.
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