Budget 2024-25: New tax regime sweetened by FM, hikes standard deduction to Rs 75,000

• No changes, or announcements for the old tax regime
• FMlowered the tax burden by increasing the standard deductions in the new regime
• Tax slabs also revised under the new regime

Finance Minister Nirmala Sitharaman presented the Union Budget 2024-25 in the parliament recently, unveiling the Narendra Modi-led government’s budget for the fiscal year 2024-25. While the government announced some changes to direct taxation, including revised tax slabs for the new tax regime, most experts called the budget lackluster.

Nitin Chaudhary, Founder of NC Financial Advisory Services highlights his disappointment, noting that this Budget has actually been not at all impactful as it was expected to be.

"It is more of a Budget for Coalition rather than any common man and tax payer. Neither there was any major drastic change in allocation as such and nor there was any major relief and tax benefits that was passed on to the tax payer.
There is a slight change in the tax slab rate owing to which there will be a very limited benefit to the tax payer in terms of tax outflow", continued Chaudhary.

Changes in new tax regime

In a bid to make the new tax regime more lucrative, the FM proposed to hike the standard deduction limit to Rs 75,000 from earlier Rs 50,000, exclusively under the new tax regime. Similarly, the deduction available for family pension is also proposed to be increased from Rs 15,000 to Rs 25,000.

More than two-thirds of taxpayers have availed of the new Income Tax regime, as per Nirmala Sitharaman. The FM announced a review of the comprehensive tax regime. Per FM, under the new regime, taxpayers will be able to save up to Rs 17,500 as taxes, annually.

The government has revised the tax rate structure for the new regime, which are now as follows -

New income tax slab rates

Income slabs	Tax rate
0 to 3L	Nil
3 to 7L	5%
7 to 10L	10%
10 to 12L	15%
12 to 15L	20%
Above 15L	30%

Prior to the changes announced today, the new tax regime was structured as follows:

Income Slab (In Rs)	Tax Rate
Up to 3,00,000	No Tax
3,00,001 - 6,00,000	5%
6,00,001 - 9,00,000	10% (Tax Rebate up to Rs 7 lakh)
9,00,001 - 12,00,000	15%
12,00,001 - 15,00,000	20%
Above 15,00,000	30%

Says T Manish, Research Analyst, SAMCO Securities, "FM announces revised tax rate under new tax regime, apart from the above slab revisions, the Standard deduction from 50,000 to 75,000 for individuals opting for new tax regime. This would result in savings of around Rs. 17500 in net taxes in the hands of individual. This would benefit directly to the companies in FMCG segment such as HUL, ITC, Dabur, Nestle and second order beneficiaries would be suppliers to these FMCG giants such as Polyplex, Uflex. Further, increased saving would also boost the inflow to wealth management (AMC’s)in the form of SIP's, and to Stock broking companies through brokerage".

Capital gains simplified

FM also moved to rationalise and simplify short-term capital gain (STCG) tax. Going ahead, STCG on specific financial assets will be charged at 20%, while the remaining financial and other non-financial assets will be charges as per applicable rates. This threshold was set at 15% previously.

The long-term capital gains tax on financial and non financial assets was raised from its earlier threshold of 10% to 12.5%. However, the exemption limit under LTCG has been enhanced. This means that now, all long-term capital gains tax earned during the year to the tune of Rs 1,25,000 will be tax exempt. This limit was earlier set at Rs 1,00,000. Specified listed financial assets will be considered long-term provided they have been held for more than 12 months.

As Anand Rathi, Co-founder of MIRA Money notes, the FM aims to send a clear message to the investors: avoid short term trading and leveraging. This is reflected in the increased security transaction taxes on futures and options,
which is a positive step. However, the increase in short term capital gains tax from 15% to 20% is a notable drawback for many traders.

"Previously, if your capital gain was 2 lakh rupees, 1 lakh was exempted, and you had to pay 10% on the remaining 1 lakh, amounting to 10,000 rupees. Now, with the same 2 lakh rupees capital gain, you would pay
12.5% tax on the remaining 75,000 rupees after the exemption, which is beneficial", Rathi explained.

Higher tax on F&O trading

In a bid to stop fund inflows into speculative trading, the securities transaction tax (STT) on trading in futures and options was increased. While STT on options was increased from 0.062% to 0.1%, while the STT on futures was raised from 0.0125% to 0.02%. While this might seem as a major setback to those trading in futures and options, experts opine that this is unlikely to significantly trading volumes in the segment. Note that this change is set to come into effect starting October 1, 2024.

Says Deepak Ramaraju, Senior Fund Manager, Shriram AMC, "Hike in short-term capital gains and long-term capital gains have been sentimentally negative for the equity markets. This has resulted in short-term selling pressure. However, this can be the beginning of reforming the capital markets and curbing retail participation in the F&O segment. We can expect more measures in the F&O space in the days to come".

Other tax changes

• The TDS rate on e-commerce operators has been reduced from 1% to 0.1%
• Angel tax, the tax levied on the capital raised via the issue of shares by unlisted companies has been abolished.
• TDS payable on insurance commission reduced from 5% to 2%, starting 1st October, 2024.
• TDS payable on rent paid over Rs 50,000 to be reduced from 5% to 2%.

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