Major Updates in Taxation – Union Budget 2024

On Tuesday, July 23, Finance Minister Nirmala Sitharaman presented the Union Budget 2024 for the seventh time. The budget document included Part B, read along with the Finance Bill, 2024, highlighting the government’s tax proposals. The amendments in direct taxation captured the attention of investors due to significant tax reforms, such as a substantial hike in capital gains tax on listed equities, an increase in STT on F&O, and a tax on share buy-backs. However, the Finance Bill, 2024, provided relief to start-up investors by abolishing the Angel tax and simplifying TDS on mutual fund repurchase units.

Major Tax Amendments

1. Revised Tax Structure Under the New Regime

The government has announced changes to the tax rate structure under the new income tax regime. Here’s a breakdown of the new slabs:

This revised structure is expected to provide significant tax relief to salaried individuals, with potential savings of up to Rs 17,500.

2. Long Term and Short Term Capital Gains Tax

Long-term gains on all financial and non-financial assets will attract a tax rate of 12.5%. The exemption limit for capital gains on certain financial assets, such as listed equity shares and equity-oriented mutual fund units under Section 112A, will increase to Rs 1.25 lakh per year.

Short-term gains on certain financial assets, including listed equity shares and equity-oriented mutual funds, will now attract a tax rate of 20%. This is an increase from the previous 10% rate for long-term gains and 15% for short-term gains on listed equity shares and equity-oriented units. This is effective from July 23, 2024.

3. Securities Transaction Tax (STT) on Futures & Options (F&O)

To broaden the tax base, the Finance Minister proposed increasing the STT on futures and options of securities to 0.02% and 0.1%, respectively. Previously, the STT on the sale of an option in securities was 0.0625% of the option premium, and on the sale of futures in securities, it was 0.0125% of the futures price, marking a 100% hike in the proposed STT. This will be effective from October 1, 2024.

4. Withdrawal of 20% TDS on Repurchase Units

To simplify the TDS structure, the 20% TDS rate on the repurchase of units by mutual funds or UTI has been withdrawn. Section 194F, which mandated this deduction, has been omitted in the Finance Bill, 2024. This will be effective from October 1, 2024.

5. Tax on Buy-Back of Equity Shares

To increase the tax base, the Finance Minister added a provision to tax income received from share buy-backs in the hands of the recipient. Section 115QA, which previously provided an exemption for such income, has been amended to include this tax. This will be effective from October 1, 2024.

6. Abolishment of Angel Tax

To support the Indian start-up ecosystem, the angel tax for all classes of investors has been abolished. Previously, angel tax was levied on the capital raised through the issuance of shares by unlisted companies if the share price exceeded the fair market value of the company.

7. Enhanced Standard Deduction

In a move to benefit salaried individuals, the standard deduction has been raised from Rs 50,000 to Rs 75,000. This increase will result in higher disposable income for taxpayers.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.