Union Budget 2024 key highlights | Major announcements Budget 2024-25

Income Tax
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The Union Budget 2024 was presented today, and many changes were announced on the personal income tax front which will be impacting taxpayers like us directly.

Let’s understand what these reforms are, and how they’ll affect us.

  1. Revised tax slabs under the new regime.

    The tax slabs under the new regime have been revised again further reducing the taxes. Below are the revised rates.

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  2. Increase in standard deduction under the new tax regime: Currently, a standard deduction of ₹50,000 is allowed to salaried employees under both the regimes. However, this deduction has been increased to ₹75,000 in the new regime. Moreover, the deduction limit for family pension was also raised from ₹15,000 to ₹25,000.

  3. Tax on short-term capital gains increased to 20%: The tax rate on short term capital gains on certain financial assets will be appliable at 20%. These include your listed shares and equity mutual funds. As the change was made on 23rd July 2024, the STCG realised before this date will be taxed at 15% and 20% thereafter.

  4. Tax on long-term capital gains will now be 12.5%: The tax on LTCG on all types of assets, be it financial or non-financial, is now revised to 12.5%.

    • This would mean that the tax on assets like real-estate, unlisted shares, gold, etc. which was earlier 20% has been brought down to 12.5%.
    • On the other hand, LTCG tax on listed shares and equity MFs which was 10% will now be increased to again, 12.5%.
    • The exemption of ₹1L on LTCG from listed shares and equity funds is now raised to ₹1.25L.

    Moreover, the indexation benefit will not be allowed on long-term capital gains.

  5. NPS deduction limit increased u/s 80CCD(2): The deduction under section 80CCD(2) against employers’ contributions to the NPS for employees has been raised from 10% to 14% of the basic salary (in the new regime).

  6. Buyback profits are made taxable: The income you earn from buyback will now be taxable similar to dividend income as per your applicable slab rate. Moreover, the cost of such shares shall be treated as a capital loss to the investor.

What are your thoughts on this budget?

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  1. Capital losses realised after budget announcement should be allowed to be adjusted against capital gains realised prior . The taxpayer should at least be given the option of taxing the entire capital gains during the year at the new rate, in the worst case.

  2. The tax on share buybacks in many cases will exceed the profit . Supposing the shares are bought at 100 and the buyback is at 110. Then , the tax @30% rate on buyback receipt will be 33. The tax offset of capital loss allowed will be 100*12.5% = 12.5 in case of long term holdings. Thus, net tax on a profit of 10 (110-100) will be 17.5 (30-12.5). SEBI has already placed lots of restrictions on buybacks through the open market route. Now tender offers will also stop.

The sensible thing would have been to treat the purchase/sale as capital gains , since the amount paid by the company is not really in the nature of a distribution but is paid in consideration for shares received .

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