India's 2024/25 Budget proposals impact individual taxpayers

Executive summary

The Finance Minister of India presented the Finance Bill for the fiscal year 2024/25 (Bill) in the Indian Parliament on 23 July 2024, proposing changes to tax laws, effective from 1 April 2024 (unless specifically mentioned otherwise).

The Budget proposals continue to reflect the Government's efforts toward simplified taxes, improved taxpayer services, tax certainty and reduced litigation.

The proposed key amendments include:

• Change in the tax rate for New Tax Regime (NTR)

• Increase in standard deduction for NTR

• Higher deduction for National Pension Scheme (NPS) under NTR

• Change in the holding period for classification of certain assets as long-term or short-term

• Revocation of the exemption from capital gains taxation for buyback of shares

• Change in tax rate for capital gains

• Waiver of penalty for nondisclosure of foreign assets in specific cases

• Rationalization of Tax Deducted at Source (TDS) rates

• Credit of Tax Collected at Source (TCS) by employer at the time of tax withholding calculation

• Claim of TCS credit in the hands of parents for TCS deducted under minor's name

• Time limit for issuance of notice for reassessment

• Introduction of Direct Tax Vivad se Vishwas Scheme, 2024

Change in tax rates for NTR

NTR continues to be the default tax regime unless an individual chooses otherwise. The tax rates for NTR with effect from 1 April 2024 are:

US$1 = 83.72 Indian rupees (INR)

Increase in standard deduction for NTR

The amount of the standard deduction available to a salaried taxpayer has been enhanced from INR 50,000 (US$597) to INR 75,000 (US$896). This enhanced deduction is available only to salaried taxpayers who opt for NTR.

Higher deduction for NPS under NTR

Currently, the employer's contribution to NPS is allowed as a deduction (i.e., nontaxable) for up to 10% of the employee's salary. It is proposed to enhance the contribution limit eligible for deduction up to 14% for employees opting for NTR.

Change in period of holding for classification of assets as long-term or short-term

The taxation of capital gains is proposed to be rationalized and simplified. The table below reflects the change in the period of holding:

Revocation of exemption of capital gains for buy back of shares

Currently, capital gains, if any, arising in the hands of shareholder is considered as exempt where the shares are sold by the shareholder under a buyback scheme of the company (public or private). It is proposed to revoke this exemption for buyback of shares by a company, effective 1 October 2024.

Change in tax rate for capital gains

The tax rate on the short-term capital gain on listed equity shares and equity-oriented mutual funds has been increased from 15% to 20%, effective 23 July 2024. Other short-term capital gains will continue to be taxed on normal rates applicable to the taxpayer (applicable rates).

The tax rate on the long-term capital gain on listed equity shares and equity-oriented mutual fund has been increased from 10% to 12.5%, effective 23 July 2024. In parallel, the nontaxable amount of long-term capital gain for this category has been enhanced from INR 1m (US$1,194) to INR 1.25m (US$ 1,493).

The tax rate on long-term capital gains on any asset (other than listed equity shares and equity-oriented mutual funds) has been reduced from 20% to 12.5%. However, the benefit of indexation (adjustment of cost price with market inflation) will no longer be available, and an actual realized gain would be taxable.

Unlisted bonds and debentures will attract tax on capital gains at applicable rates, irrespective of the holding period.

Any sale of any asset executed between 1 April 2024 and 22 July 2024 shall continue to be taxable at the rates in force until this date.

Waiver of penalty for nondisclosure of foreign asset in specific cases

Under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (BMA), a Resident individual is required to report foreign income and assets in his/her income tax return. Failure to comply can result in a tax and a penalty under the BMA. It is proposed to amend the BMA to provide relief to individuals through non-levy of penalties where an individual omits reporting assets (other than immovable property) valued at INR 20m (US$23,889) or less.

Rationalization of TDS rates

With an intent to simplify withholding tax provisions, several changes are announced on the TDS rates. It is proposed to reduce the TDS rate from 5% to 2% for payments such as rent by an individual or a Hindi Undivided Family (HUF), payment of commission and brokerage, etc.

Credit of TCS by employer at the time of tax withholding calculation

Where an individual transfers funds outside India beyond specified limit, a TCS is collected on the outward remittance. Currently, the employer is not allowed to consider the TCS as a credit for calculating tax due on the salary income. This has resulted in cash flow issues to the employees. It is proposed to allow the employer to consider TCS while computing the tax due on salary income.

Claim of TCS credit in the hands of parents for TCS deducted under minor's name

Under the existing tax laws, there is no specific provision that allows the parent of a minor to avail itself of TCS collected in the name of a minor. It is proposed to allow the parent of a minor, in whose tax return the minor's income is included, to avail himself/herself of the credit for the TCS deducted in the minor's name.

Time limit for issuance of notice for reassessment

To simplify reassessments and improve certainty, reassessment can now be initiated beyond three years from the end of the assessment year if the escaped income is INR 50m (US$59,722) or more and the reassessment is initiated within five years and three months from the end of the assessment year.

Introduction of Direct Tax Vivad se Vishwas Scheme, 2024

With the objective of reducing litigation and settling pending disputes, the government proposes to introduce a Direct Tax Vivad se Vishwas Scheme in 2024. The Central Government will provide notice regarding the date that this scheme comes into force and the last date for the scheme.

Next steps

The provisions of the Bill will not become law until they have been approved by both houses of the Indian Parliament and received assent from the President of India. Once approved, the provisions will apply for the 2024/25 Indian fiscal year (1 April 2024 to 31 March 2025), unless specified otherwise.

Individuals should review the proposed provisions and note in particular those which will be implemented in full.