Income Tax Regime Overhaul
In her speech on the Union Budget 2024, the Finance Minister, Nirmala Sitharaman, declared far-reaching reforms in the regime of income tax, having the goals of simplification and encouraging more and more people to adopt this new tax structure.
PC: The Economic Times
New Income Tax Slabs for FY 2024-25
- Up to Rs 3 lakh: Tax rate is NIL.
- Rs 3 lakh to Rs 7 lakh: Tax rate is 5%.
- Rs 7 lakh to Rs 10 lakh: Tax rate is 10%.
- Rs 10 lakh to Rs 12 lakh: Tax rate is 15%.
- Rs 12 lakh to Rs 15 lakh: Tax rate is 20%.
- Above Rs 15 lakh: Tax rate is 30%.
The tax slab limit for 5% tax rate was changed from Rs 5 lakh to Rs 7 lakh. These revised slabs have lower tax rates in the initial income brackets, which encourage people to opt for the new regime.
Standard Deduction Increase
The standard deduction has been increased from Rs 50,000 to Rs 75,000, and the comfort for relief to individual taxpayers remains more or less the same.
Capital Gains Tax Reforms
In a significant overhaul of the capital gains tax regime, Finance Minister Sitharaman announced revised rates aimed at increasing government revenue. Hike in the capital gains exemption limit to Rs 1.25 lakh per year.
Capital Gains Tax Rates
- Short-term Capital Gains (STCG): Shall be taxed at applicable slab rates under the new regime of income tax. STCG tax rate changed to 20%.
- Long-term Capital Gains (LTCG): Revised rates apply with more imposing taxes than in the past. LTCG hiked to 12.5% on certain assets in Budget 2024.
Hence, these changes are likely to affect investors, particularly in the stock market and real estate sectors.
Hike in Securities Transaction Tax
Additionally, the government has also proposed an enhancement of deductions on account of NPS contributions to strengthen social security provisions. The securities transaction tax (STT) on F&O, revised from 0.01% to 0.02%, and the long-term capital gains tax (LTCG) increased from 10% to 12.5%, have emerged as negatives for investors.
On the other hand, there is now an estimate that the fiscal deficit will come down to 4.9% from 5.1%, and next year it can achieve the target of 4.5%. This translates to a borrowing target reduced to ₹1.4 lakh crore from an estimated ₹15.43 lakh crore for FY24.
NPS Contribution Deduction
- The government has proposed an increase in the employer’s contribution to NPS from the current 10% to 14% of the employee’s salary.
- Private sector employees too can avail deductions up to 14% of their salary towards NPS contributions under the new regime.
These measures aim to enhance retirement benefits for employees and encourage long-term savings.
Fiscal Impact and Revenue Projections
The Budget outlined the financial implications of these tax reforms and initiatives:
- Revenue Forgone
It is estimated that, on account of reduced tax rates and increased deductions, the total revenue forgone would come to about Rs 37,000 crore annually. Of this, Rs 29,000 crore relates to direct taxes and Rs 8,000 crore to indirect taxes.
- Additional Revenue Mobilisation
It is expected to mobilise additional revenue of around Rs 30,000 crore through various tax measures, setting off a part of the revenue forgone.
- Net Fiscal Impact
This comes to about Rs 7,000 crore per annum of net revenue forgone, hence indicating the balancing act of the government in taping fiscal incentives against the generation of revenues.
The Union Budget 2024 has sweeping reforms in the fields of income tax and capital gains tax with an emphasis on lower rates for individual taxpayers in the new regime. The new changes are supplemented by increased deductions on NPS contributions with a view to enlarging social security benefits. These reforms will reduce the revenue of the government immediately, but they will generate economic activity and compliance with taxation in the long run.
