Budget 2024: Did the Union Budget 2024 of Modi 3.0 bring cheers to Aam Aadmi?

In an effort to simplify taxation, announcements regarding Budget 2024 were made in Parliament yesterday. This has evoked mixed reactions from individuals, with some feeling optimistic and others apprehensive.

India currently operates under two tax regimes, with the government promoting the New Tax Regime. The recent Budget 2024 has introduced certain tax benefits that are exclusive to those who choose the New Tax Regime.

Changes in slab rates have been implemented to offer tax advantages in the New Tax Regime. Income up to 3 lakh remains tax-exempt in this new regime. Additionally, adjustments have been made to the tax slabs to provide an overall tax benefit of Rs. 10,000.

The standard deduction from salary income has also been raised from Rs. 50,000 to Rs. 75,000 under the new tax regime. When combined with the adjusted slab rates, this increase in standard deduction results in an additional tax benefit of Rs. 17,500 for individuals.

The salaried individuals are also allowed to get higher deductions for the employer’s contribution to NPS. Under the extant provisions, the employer’s contribution to NPS is allowed as a deduction of up to 10% of salary in the case of private employers. However, this Budget has proposed to increase this limit from 10% of salary to 14% of salary in case of individuals opting for new tax regimes. 

There is no change in the tax rates for those opting old tax regime.

The Union Budget 2024 has introduced several changes to the capital gains taxation regime. The rules regarding the holding period have been simplified. It is now proposed that the holding period for all listed securities will be considered long-term if they are held for more than 12 months. For all other assets, the holding period is 24 months.
The tax rate on Short Term Capital Gains under section 111A for listed equity shares, mutual fund units, etc. on which STT is paid has been increased from 15% to 20%. Other short-term capital gains are taxable at the regular rates. The Tax rate under section 112A for long-term capital gains on listed equity shares, mutual fund units has been increased from 10% to 12.5%. Additionally, the exemption limit for Long-term capital gains has been raised from Rs.1 lakh to Rs. 1.25 lakh.
A significant amendment that has impacted the real estate sector and individuals is the rollback of index benefits.

Currently, indexation is available for calculating capital gains tax on long-term gains from property, gold, unlisted assets, etc. Indexation adjusts the purchase price of the asset for inflation, thereby reducing taxable capital gains for taxpayers. Indexation is based on the Cost Inflation Index notified by the Government.
The impact of this amendment on individuals needs to be analyzed on a case-by-case basis. Generally, this amendment will negatively affect the sale of old properties that have been held or inherited, as tax will now have to be paid on the capital gains without taking indexation into account.

There is another consequential impact of the new tax proposal to remove indexation. The new provisions will also increase the amount of capital gains.

With the implementation of Tax Collected at Source (TCS) on various payments such as foreign remittances and foreign travel, taxpayers faced a cash flow issue because they were not allowed to claim credit of TCS against Tax Deducted at Source (TDS) on their salary. In a positive development, the Budget has addressed this concern by allowing the claim of TCS at the time of TDS under Salary. The Foreign Exchange laws also permit minors to remit funds up to USD 250,000 under the liberalized remittance scheme. Previously, there was no provision in the tax law to allow parents to claim credit of TCS in their tax returns.
Furthermore, it has been proposed that the TCS paid by a minor can be claimed when their income is added to the parent's income. Additionally, there is good news for Indian residents with foreign assets. Under the Black Money Act, all Indian residents are required to disclose their foreign assets when filing their tax returns. Failure to report such assets can result in a penalty of Rs. 10 lakh under the Black Money Act.

Currently, these provisions do not apply to foreign bank accounts with a peak balance of Rs. 5 lakh. This exemption has been extended to all foreign assets (except for immovable property) where the total value of such assets does not exceed Rs. 20 lakh.

This budget has been seen as a mixed bag for the common man. While it does bring some positive changes such as reduction of tax slabs and an increase in standard deduction, the effects of the changes in capital gain taxation still need to be analyzed on an individual level.

The authors are partners at Areete Consultants LLP. Areete is an accounting and consultancy firm.