The Union Budget 2024-25 aims to strike a crucial balance between offering relief to taxpayers and ensuring robust revenue collection for the government. With a clear focus on driving economic growth, simplifying tax laws, and enhancing fiscal governance, the budget introduces bold reforms designed to boost compliance. By reshaping both direct and indirect taxation, this budget brings transformative changes that will impact all taxpayers, from small businesses to large corporations.
One of the salient features in the budget this year is the enhanced standard deduction for salaried people. The standard deduction for a salaried person in the new tax regime stands enhanced at ₹75,000 from ₹50,000. This benefits the salaried class immensely because they would save a bigger part of their taxable income. Pensioners have not been left behind. Raising the family pension deduction from ₹15,000 to ₹25,000 has relieved the tax burden on a retiree. It is more than clear that the new regime emphasizes helping the middle class and pensioners by giving them more disposable money, an indication of its motto.
Further changes have been made to the income tax structure under the new regime, which provides simplified tax slabs and rates. Here's a comparison of the old and new tax rates:
Income Range | Old Tax Rate | New Tax Rate |
Rs. 0 – 3 lakh | Nil | Nil |
Rs. 3 – 7 lakh | 5% | 5% |
Rs. 7 – 10 lakh | 15% | 10% |
Rs. 10 – 12 lakh | 20% | 15% |
Rs. 12 – 15 lakh | 25% | 20% |
Rs. 15 lakh + | 30% | 30% |
Particularly for middle-class taxpayers, these updated slabs are intended to save taxes while streamlining the tax system. Depending on their income, salaried individuals may save up to ₹17,500 in taxes annually as a result of the adjustments. (https://cleartax.in/s/budget-2024-highlights)
One of the key reforms in this budget is reorganizing the capital gains tax structure. It raises the rate on short-term capital gains from equity mutual funds, listed equity shares, and real estate investment trusts to 20% from 15%. Now, there is uniformity in the taxation of short-term profits across asset classes, even if this lifts up the tax burden on traders and investors. However, it has reduced the long-term capital gains (LTCG) tax rate across all classes of assets from 20% to 12.5%. This is likely to benefit long-term investors.
To some extent, however, the removal of indexation benefits for assets such as gold and real estate—which were used to adjust gains for inflation in the past—might take away some of the advantages of this lower tax rate. Another measure related to it is the increase in the limit of exemption in respect of long-term capital gains arising on transfer of listed equity shares and mutual funds. (https://www.indiabudget.gov.in/doc/bh1.pdf)
In an effort to further improve compliance, the budget also introduces a new provision under Section 194T. A firm, including an Limited Liability Partnership (LLP), shall deduct tax at the rate of 10% on payments made to its partners, even beyond the sum of ₹20,000. Such payments include salary, remuneration, interest, bonus, or commission. The government feels this move will make the regime more transparent and bring greater credibility into the system of tax compliance for businesses and professionals.
Significant relief for foreign businesses operating in India was also included in the budget. For these organizations, the corporate tax rate has been lowered from 40% to 35%. This cut is anticipated to improve India's appeal as a location for international investments and is consistent with current trends in corporate taxation worldwide. The government hopes to increase foreign direct investment (FDI) and further integrate India into the global economy by reducing the tax burden on multinational firms.
All in line with the government's stance on boosting local production, a host of cuts and exemptions in customs duties have been brought about. These are for mobile phone manufacturing, solar, and pharmaceuticals. For instance, the customs duty on mobile phones, chargers, and their components has been cut to 15% from 20%, while duty on cancer drugs and components of solar panels have been waived. This is to reduce the prices of goods and support the government's 'Make in India' initiative. (https://static.pib.gov.in/WriteReadData/specificdocs/documents/2024/jul/doc2024726355001.pdf)
The Union Budget 2024-25 strikes a balance by offering targeted relief for individual taxpayers, while also simplifying the tax code and encouraging investment. Improvement in deductions, especially for the salaried class and pensioners, will further display the government's intent to provide monetary relief to the middle class. At the same time, the simplification of capital gains taxes and the reduction in corporate taxes for foreign companies serves an ostensible purpose with a view to inviting investment and spurring economic growth.
Though very few can be indifferent to the loss of the benefits linked with indexation, the net reduction in long-term capital gains taxes is in the right direction toward a simpler and more equal tax regime. Further, the focus of the government on improving compliance and increasing the tax base can be seen in the introduction of TDS on payments made by a firm to its partners and changes in the securities transaction tax.
These strategic shifts are poised to be pivotal in accelerating India’s post-pandemic recovery, attracting foreign investments, and strengthening the nation's global competitiveness.
As India makes its way towards long-term growth and economic stability, the reforms to be undertaken within the Union Budget 2024-25 are going to play a massive role in deciding the fiscal ecosystem of this country. Focused on simplification, compliance, and fostering investment, the budget places India in a position to be competitive within the global economy while at the same time meaningfully providing relief to its people.
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