‘Wish could bring taxes to nil, but India's challenges...’: FM Nirmala Sitharaman on taxing middle class

Union Finance Minister Nirmala Sitharaman on Tuesday said that if it was in her hands, she would have reduced taxes to almost nil for all. She cited that the taxation process is crucial as India’s challenges are unique.

Speaking at an event at the Indian Institutes of Science Education and Research, FM Sitharaman said: “Tax revenue is crucial to fund India’s research and development. The government is committed to generating revenue without burdening people. India's taxes fund critical sectors like renewable energy and innovation and despite challenges, India invests heavily in transitioning to renewable energy.” 

This year, in her seventh Budget, FM Sitharaman announced a slew of schemes starting from abolishing angel tax in a massive boost for the startup ecosystem to revising the new tax regime structure. Other key tax changes included a higher Securities Transaction Tax (STT), and lower capital gains taxes.

Here are the top points:

1. FM Sitharaman said a thorough review of the Income Tax Act of 1961 will be carried out that would benefit the middle class. It is expected to be completed in six months.

2. The Centre revised tax structure under New Tax Regime. FM Sitharaman said that the tax payers would save up to Rs 17,500 in tax with the revised structure.

> Rs 0- Rs 3 lakh - Nil;

> Rs 3-7 lakh - 5% ;

> Rs 7-10 lakh - 10% ;

> Rs 10-12 lakh - 15%;

> Rs 12-15 lakh - 20%; and

> Above Rs 15 lakh - 30%

3. To promote the adoption of the New Tax Regime (NTR), the standard deduction has been increased from Rs 50,000 to Rs 75,000. The surcharge and education cess remain unchanged, and there are no modifications to the old tax regime. 

4. The Union Budget proposed that income from letting out of a house or part of the house by the owner, would not be charged under the head 'profits and gains of business or profession' and rather it will be chargeable to tax under the head 'income from house property'.

5. FM Sitharaman  said the government will come out with SoP (standard operating procedure) for TDS defaults and simplify and rationalise compounding of such offences.

6. She added that two tax exemption regimes for charitable trusts will be merged into one.

7. Capital gains taxation has been streamlined with short-term gains reduced to 20% and long-term gains to 12.5% for specific assets. Capital gains tax will now also apply to unlisted bonds and debentures.

8. The Securities Transaction Tax (STT) on option sales has increased from 0.0625% to 0.1%. The STT on futures and options (F&O) securities has been raised by 0.02% and 0.1%, respectively.

9. The TDS on e-commerce transactions has been reduced from 1% to 0.1%.

10. The indexation benefit for immovable assets, such as real estate, was initially eliminated. Later, the government amended the long-term capital gains tax provision on immovable properties on August 7. Homeowners now have the option to select between a lower tax rate of 12.5% without indexation or a higher rate of 20% with indexation for properties acquired before July 23, 2024. This would allow taxpayers to calculate tax outgo under both schemes and provide them a choice to pay tax under the scheme in which it is lower.

11. FM Sitharaman proposed to abolish the 'angel tax' for all classes of investors. She added that this move is aimed at bolstering the Indian start-up ecosystem, boosting the entrepreneurial spirit, and supporting innovation.

12. Employer NPS deduction increased from 10% to 14%.

13. The tax rate for foreign companies has been reduced from 40% to 35%.

14. Reopening and reassessment rules of tax was relaxed. Assessments can now be reopened beyond three years only if undisclosed income exceeds Rs 50 lakh, with a maximum reopening period of five years from the end of the assessment year.