The Union Budget 2024-25 introduces significant reforms in direct taxes to simplify the tax system, improve taxpayer services, reduce litigation, and enhance revenues for government development and welfare schemes. Key highlights include:
Simplification of Tax Regimes
Tax regimes without exemptions and deductions continue to be promoted, with 58% of corporate and over two-thirds of personal income tax filers opting for simplified regimes in 2022-23.
Review of the Income-tax Act, 1961
A six-month review aims to make the Income-tax Act concise, understandable, and less prone to disputes, starting with simplified regimes for charities, TDS, reassessment, and capital gains.
Simplification Measures
Charities and TDS: Tax exemption regimes for charities are merged into one. TDS rates are adjusted, with the 5% rate merged into 2%, the 20% rate on repurchase of units withdrawn, and the e-commerce rate reduced from 1% to 0.1%. TDS payment delays up to the filing date are decriminalized, and standard operating procedures for TDS defaults and compounding guidelines are provided.
Reassessment: Reassessments can only reopen beyond three years if escaped income is ₹50 lakh or more, up to a maximum of five years. In search cases, the time limit is reduced from ten years to six years.
Capital Gains: Short-term gains on certain financial assets will be taxed at 20%, and long-term gains on all assets at 12.5%, with increased exemption limits for certain financial assets. Specific rules for various assets are also outlined.
Enhancing Taxpayer Services
Most taxpayer services under GST, Customs, and Income Tax are digitalized, with the remaining services to be paperless in two years.
Reducing Litigation and Appeals
Efforts include deploying more officers to handle first appeal backlogs, introducing the Vivad Se Vishwas Scheme, 2024, increasing monetary limits for filing appeals, and expanding safe harbour rules and transfer pricing assessments.
Promoting Employment and Investment
Proposals include abolishing the “angel tax” for all investors, a simplified tax regime for foreign shipping companies, safe harbour rates for foreign mining companies, and reducing the corporate tax rate on foreign companies from 40% to 35%.
Deepening the Tax Base
Measures include increasing the Security Transactions Tax on futures and options, and taxing income from share buybacks in the recipient’s hands.
Additional Measures
Social Security and Other Measures: Employer deductions for NPS increase from 10% to 14% of salary. Non-reporting of small foreign assets up to ₹20 lakh under the Black Money Act is de-penalized. The equalization levy of 2% is withdrawn, and tax benefits for certain IFSC funds and entities are expanded. Immunity from penalty and prosecution is provided to benamidar on full disclosure under the Benami Transactions (Prohibition) Act, 1988.
Personal Income Tax
Changes include an increased standard deduction for salaried employees from ₹50,000 to ₹75,000, an enhanced deduction on family pension for pensioners from ₹15,000 to ₹25,000, and a revised tax rate structure in the new tax regime, providing savings for salaried employees.
Financial Impact
The proposals result in a revenue forgone of ₹37,000 crore (₹29,000 crore in direct taxes and ₹8,000 crore in indirect taxes), with additional revenue mobilization of ₹30,000 crore, leading to a net revenue forgone of ₹7,000 crore annually.
The Union Budget 2024-25 demonstrates a commitment to tax simplification, improved taxpayer services, reduced litigation, and strategic reforms to promote investment and employment, supporting overall economic growth and development.
