Budget Day is always a momentous occasion, sparking keen interest as we dissect its implications on our finances. While the certainty of taxes is something we all face, our primary concern is often how these changes impact our take-home pay, particularly for salaried individuals. Let’s break down this year’s Budget and see what it means for you.
As we adapt to these updates, keep your focus on what you can control: your personal growth and income. Investing in yourself and working to enhance your earnings can make a significant difference. Although taxes are a constant, steering your financial future lies in your hands.
Changes in your tax slab:
The Budget has revised the tax slabs in the new tax regime to enhance its appeal to taxpayers. Under this regime, the standard deduction is proposed to increase from ₹50,000 to ₹75,000.
Pay No Tax on an Income of up to ₹7.75 Lakh
The recent changes in tax slabs will result in significant savings for lower and middle-income groups, while those in higher-income brackets will see minimal impact. These adjustments allow salaried employees in the new tax regime to save up to ₹17,500 in income tax.
The higher standard deduction of ₹75,000 means that anyone with an annual income of ₹7.75 lakh will not have to pay any tax. Additionally, under the new regime, taxpayers with an annual income of up to ₹7 lakh are eligible for a full tax rebate under Section 87A.
This is the second change in the new tax regime’s slab structure in as many years. Last year’s Budget reduced the number of slabs from seven to six and extended the standard deduction to the new regime. Let me explain:
Improved Financial Stability for Pensioners
The Budget 2024 proposes increasing the family pension deduction from ₹15,000 to ₹25,000, providing greater financial stability for pensioners. Meanwhile, taxpayers who prefer the old tax regime will see no changes in their tax liabilities, as no updates were announced for that system.
Simplification of capital gains on real estate transactions:
The Budget 2024 has removed the indexation benefit for property sales, changing how capital gains are calculated. Previously, sellers could adjust their purchase price for inflation, reducing their taxable gains, and were taxed at 20 Percent on long-term capital gains (LTCG). Now, the LTCG tax rate is reduced to 12.5 percent, but without the inflation adjustment.
Here is an example to illustrate this change:
Mr. A bought a property for ₹50 lakh in FY 2004-2005. He sells the property in FY 2023-2024 for ₹1.5 crore. Under the previous rules, the purchase price of ₹50 lakh would be adjusted for inflation using the Cost Inflation Index (CII) numbers provided by the Income Tax Department. However, under the new rules, there will be no adjustment for inflation. The capital gains will be calculated by directly subtracting the purchase price from the sale price. Although the good news is that the LTCG tax rate has been reduced from 20 percent to 12.5 percent, the lack of indexation requires careful calculation to determine the actual tax impact.
Also Read- Budget 2024: Higher taxes for markets investors, F&O clampdown
The objective is to simplify capital gains taxation by reducing the LTCG tax rate to 12.5 percent and removing the indexation benefit. This change is intended to make capital gains calculations easier for both taxpayers and tax authorities.
How the Indexation Removal Affects Real Estate Investors
The elimination of indexation benefits poses a challenge for long-term real estate investors. Without this adjustment, taxable capital gains are likely to rise, increasing the tax burden on property sales. This could reduce net profits and potentially deter investment in real estate, especially for those who have held properties for an extended period where inflation has had a greater impact.
New Tax Relief for Multiple Properties and Short-Term Rentals
Under the new tax rules, individuals can now designate up to two properties as self-occupied. This change is advantageous for homeowners with multiple properties or those renting out homes on short-term platforms like Airbnb, providing relief and simplifying tax management.
Increased Long-Term Capital Gains Tax on financial assets
The long-term capital gains tax (LTCG) has been raised from 10 percent to 12.5 percent across all financial and non-financial assets. Short-term capital gains (STCG) on specific assets will now be taxed at 20 percent. The exemption limit for LTCG has also increased from ₹1 lakh to ₹1.25 lakh. The Budget clarifies that listed financial assets held for over a year will be deemed long-term, while unlisted financial assets and non-financial assets must be held for at least two years to qualify.
Also Read- Budget 2024 is a quest for equitable growth: CRISIL
I see these changes may create concerns about potential future tax increases, but it’s essential to remember that equity gains could offset some of these taxes. Equity mutual funds remain a compelling investment option. As I always say, “Death and taxes are certain,” so focusing on increasing income and controlling what you can is key.
Budget 2024 Highlights: STT Hike and NPS Enhancements
STT Increase for Futures and Options:
Futures and Options (F&O) traders will face a significant tax increase as the Security Transaction Tax (STT) rises from 0.01 percent to 0.02 percent. This adjustment will effectively double the tax on equity and index trades.
Boost in NPS Tax Deductions:
The deduction limit for employer contributions to the New Pension Scheme (NPS) is set to rise from 10 percent to 14 percent. This enhancement will benefit both public and private sector employees, aligning their tax advantages with those of government employees.
Introduction of NPS Vatsalya for Minors:
The new NPS Vatsalya scheme allows parents to contribute to a minor’s NPS account, which will convert to a regular NPS plan upon the child’s 18th birthday. This scheme fosters early financial discipline and seamlessly transitions to a standard NPS plan.
Changes to Buyback Taxation and Reporting Requirements
Buybacks Taxed as Dividends:
Starting October 1, buybacks will be taxed as dividend income, significantly reducing their appeal to investors. This proposal may alter investment strategies, making buybacks less attractive compared to before.
Relaxed Penalties for Foreign Assets:
The Budget introduces a relaxation in penalties for not reporting foreign assets up to ₹20 lakh. This change aims to ease the burden on small taxpayers who may have inadvertently overlooked reporting overseas assets.
Eased TDS for Salaried Employees:
From October 1, salaried employees will benefit from reduced Tax Deducted at Source (TDS) as they can now declare Tax Collected at Source (TCS) to their employers. This update will help manage cash flow better and allow any refunds due to be adjusted directly against TDS.
These changes bring both challenges and opportunities. The shift in buyback taxation may prompt investors to reconsider their strategies, while relaxed penalties and adjusted TDS rules offer significant relief to taxpayers. It’s crucial to stay informed and adapt to these updates to optimise your financial planning.
The writer is a Chartered Accountant and founder of NRP Capitals.
The thoughts and opinions shared here are of the author.
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