The Union Budget 2024-25, presented in July, outlined a vision for a robust and inclusive India. The finance minister Nirmala Sitharaman unveiled several key initiatives addressing a range of critical areas, from infrastructure development and healthcare enhancements to tax reforms and educational investments. With a focus on stimulating economic growth, the new budget aims to address both immediate needs and long-term strategic goals. Let us delve into some of the key highlights.
Increased Limit of Standard Deduction & Family Pension Deduction Under New Tax Regime
- Standard Deduction Changes: What Salaried Individuals Need to Know in the New and Old Tax Regime
The Income Tax Act not only outlines how taxes are imposed on citizens’ income but also offers various opportunities for claiming rebates & deductions. These deductions are available depending on how taxpayers allocate and spend their income. One such is the standard deduction.
A standard deduction is a fixed amount (₹ 50,000 before the Budget 2024) that taxpayers can subtract from their total income before calculating their taxable income. It simplifies the process of filing taxes by providing a straightforward deduction without requiring taxpayers to itemize their expenses.
Budget July 2024 Update:
For the financial year 2024-25, taxpayers can claim a standard deduction of Rs. 75,000 under the new income tax regime. However, there is no change to the old tax regime, so the standard deduction remains at Rs. 50,000 if you choose the old regime.
- Higher Deduction on Family Pension for New Tax Regime
Family pension is provided to the surviving spouse (widow or widower) of a government employee who joined service between January 1, 1964, and December 31, 2003. If there is no surviving spouse, the children may be eligible. The specific rules also cover government employees who joined before 1964 but were later brought under the Family Pension Scheme.
Know more about the Family Pension – Click Here to Download
The Budget 2024 introduced a higher deduction on family pensions for taxpayers opting for the new income tax regime. This deduction has been increased from Rs. 15,000 to Rs. 25,000, providing additional tax relief to pensioners.
Revised Tax Structure Under New Tax Regime
The below table shows the revised tax slabs Under the New Regime
| Total Income | Tax Rate |
| up to ₹ 3,00,000 | Nil |
| ₹ 3,00,001 – ₹ 7,00,000 | 5% |
| ₹ 7,00,001 – ₹ 10,00,000 | 10% |
| ₹ 10,00,001 – ₹ 12,00,000 | 15% |
| ₹ 12,00,001 – ₹ 15,00,000 | 20% |
| ₹ 15,00,001 and above | 30% |
Capital Gains Tax Simplified: Key Changes in Budget 2024
- The government has streamlined the classification of assets into long-term and short-term capital assets by reducing the holding periods to just two categories: 12 months and 24 months. The previous 36-month holding period has been eliminated.
- Unlisted bonds and debentures will now be taxed similarly to debt mutual funds and market-linked debentures. This means that any capital gains from these investments will be taxed at the investor’s income tax slab rate, regardless of how long the bonds or debentures were held.
- To determine if a capital gain is short-term or long-term, there are now two main holding periods 12 months & 24 months.
The below table shows the changes in the taxation for different investment products
| Particulars | Revised Holding Period from Budget 2024 | Tax on Short Term Capital Gains (STCG) | Tax on Long Term Capital Gains (LTCG) | ||
| Investment Product | Old | New | Old | New | |
| Listed Equity, Equity ETFs, and Equity Mutual Funds (If STT Paid) (>65% in Domestic Equity) | 12 Months | 15% | 20% | Capital Gains up to ₹ 1 lakh is exempted and the excess gains are taxed at 10% | Capital Gains up to ₹ 1.25 lakhs is exempted and the excess gains are taxed at 12.5% |
| Equity Mutual Funds (If STT Not Paid) | 12 Months | Slab Rate | Slab Rate | 20% With Indexation Benefit | 12.50% |
| Unlisted Equity | 24 Months | Slab Rate | Slab Rate | 20% With Indexation Benefit | 12.50% |
| International Equity & International Mutual Funds (< 65% in Domestic Equity) | 24 Months | Slab Rate | Slab Rate | 20% With Indexation Benefit | 12.50% |
| Listed Bonds & Debentures | 12 Months | Slab Rate | 20% | 10% Without Indexation Benefit | 12.50% |
| Unlisted Bonds & Debentures | 24 Months | Slab Rate | Slab Rate | 20% Without Indexation Benefit | Slab Rate |
| Debt Mutual funds (<35% in Domestic Equity) | 24 Months | Slab Rate | Slab Rate | Slab Rate | Slab Rate |
| Physical gold, Gold Mutual Funds and Gold ETF’s | 24 Months | Slab Rate | Slab Rate | 20% With Indexation Benefit | 12.50% |
| Sovereign Gold Bonds (SGB’s) (Listed) | 24 Months | Slab Rate | Slab Rate | 20% With Indexation Benefit or 10% Without Indexation Benefit | 12.50% |
| Hybrid Funds (> 35% & < 65% in Domestic Equity) | 24 Months | Slab Rate | Slab Rate | 20% With Indexation Benefit | 12.50% |
| Real estate | 24 Months | Slab Rate | Slab Rate | 20% With Indexation Benefit | 12.50% |
Removal of Indexation Benefit: A Major Tax Change
What is Indexation?
Indexation is a method used to adjust the purchase price of an asset to account for inflation, thereby reducing the taxable capital gains. Under the previous tax regime, indexation allowed taxpayers to increase the cost of acquisition of their assets by applying an inflation index, which reduced the nominal gains and subsequently the tax liability.
One of the most significant changes introduced in the Union Budget 2024 is the removal of the indexation benefit for long-term capital gains (LTCG). This adjustment marks a significant shift in how capital gains are taxed and is set to impact investors and taxpayers who previously relied on indexation to adjust for inflation.
This benefit previously allowed taxpayers to adjust the purchase price of an asset for inflation, thereby reducing the taxable capital gains.
With the elimination of indexation, the entire capital gain becomes taxable at the applicable LTCG tax rate. While the government has reduced the LTCG tax rate to 12.5%, the impact on taxpayers, especially those who have held assets for a long period, could be substantial.
Reason for Change: The move to eliminate indexation is part of a broader effort to simplify the tax structure and align capital gains taxation with current economic realities. It aims to streamline the tax calculation process and create a more uniform approach to taxation.
Taxpayers who have previously benefited from indexation will need to adjust their financial planning strategies. It is advisable for investors to review their portfolios and consult with tax professionals to understand how this change may affect their tax obligations and investment strategies.
Boost for Retirement Savings: Increase in Deduction on Employer’s Contribution to Pension Scheme
The government has increased the tax deduction limit for employer contributions to the National Pension Scheme (NPS) for taxpayers opting for the new income tax regime. Employers can now contribute up to 14% of an employee’s salary (plus dearness allowance) to the NPS, which can be claimed as a deduction. However, this benefit is exclusively available to those who have chosen the new tax regime.
Under the new tax regime, only specific exemptions and deductions are allowed. The below table shows the deductions we can claim under the section 80CCD (1) & 80CCD (2)
| Section | Particulars | Old Tax Regime | New Tax Regime |
| 80CCD (1) | Employee/Self Contributions to NPS | Can Claim Deduction | Cannot Claim Deduction |
| 80CCD (2) | Employer Contributions to NPS | Can Claim Deduction |
STT on Futures and Options
The Union Budget 2024 introduced a significant hike in the Securities Transaction Tax (STT) applicable to futures and options trading. The STT on futures has been increased from 0.0125% to 0.02%, while the STT on options has been increased from 0.0625% to 0.1%.
This move is aimed at several objectives:
- Discouraging Excessive Speculation: By increasing the cost of trading in derivatives, the government intends to curb excessive speculation and promote a more stable market environment.
- Revenue Generation: The higher STT rates are expected to generate additional revenue for the government.
- Investor Protection: The government believes that reducing speculative activity can help protect investors from excessive market volatility.
While this change may impact the profitability of high-frequency traders and active derivatives traders, its overall impact on retail investors is expected to be relatively minimal.
The Union Budget 2024 has introduced several changes that will impact our finances. Understanding these changes is crucial to making informed financial decisions. We have covered some of the key highlights in this blog. Schedule a free consultation call today to unlock the full potential of the budget and understand the impact of taxes on your tax savings. Let us help you navigate the complexities of the new and old tax regime and make the most of the opportunities available.
