Categories: Taxation

An Legal Analysis on Taxation Reforms in Budget 2024

The Budget 2024 has introduced a series of significant taxation reforms aimed at reshaping India’s tax regime to foster economic growth, enhance investment attractiveness, and provide relief to taxpayers.

The changes span for both direct and indirect taxes, addressing various aspects of income tax, capital gains, corporate tax, and indirect tax systems. With an emphasis on simplifying the tax structure, incentivizing investment, and promoting equitable tax practices, the reforms reflect a strategic approach to strengthening India’s financial and economic framework.

The taxation reforms introduced in Budget 2024 aim to simplify the tax structure, enhance investment attractiveness, and provide substantial relief to taxpayers.

This article delves into the key taxation reforms introduced in Budget 2024, exploring their implications and the broader impact on the economy and individual taxpayers.

1. New Tax Regime Made More Attractive:

  • Increased Standard Deduction: The standard deduction limit has been raised from ₹50,000 to ₹75,000. This change will lower the taxable income for individuals, providing them with more tax relief.
  • Enhanced Family Pension Deduction: The limit for deduction of family pension has been increased to ₹20,000. This adjustment benefits individuals receiving family pensions by allowing a higher amount to be deducted from taxable income.
  • Increased Deduction for Employer’s Contribution: Under Section 80CCD(2), which pertains to contributions made by the employer to a National Pension System (NPS) account, the deduction limit has been raised to 14% of the salary plus dearness allowance. This aims to boost retirement savings for employees.
  • Revised Tax Slabs: The income tax slabs have been adjusted to provide relief to taxpayers in certain income brackets. This is likely to involve reducing tax rates or expanding the income thresholds for lower tax rates, thereby increasing disposable income.

Revised Tax Slabs for FY 2023-24 (AY 2024-25)

  • Income up to ₹3 lakh: Nil tax
  • Income from ₹3 lakh to ₹7 lakh: 5% tax
  • Income from ₹7 lakh to ₹10 lakh: 10% tax
  • Income from ₹10 lakh to ₹12 lakh: 15% tax
  • Income from ₹12 lakh to ₹15 lakh: 20% tax
  • Income above ₹15 lakh: 30% tax

2. Capital Gains Tax Rationalization:

  • Short-Term Capital Gains (STCG) Tax Increase: The tax rate on STCG for listed equity shares and equity-oriented mutual funds has been increased from 15% to 20%. This change aims to align capital gains tax rates more closely with overall income tax rates.
  • Long-Term Capital Gains (LTCG) Exemption Limit Raised: The exemption limit for LTCG under Section 112A, which applies to gains from listed equity shares and mutual funds, has been increased from ₹1 lakh to ₹1.25 lakh. This allows taxpayers to realize a higher amount of capital gains tax-free.
  • Revamped Buyback Tax: Buyback of shares by companies will now be taxed as deemed dividends in the hands of the recipient. This reform changes the tax treatment of share buybacks to align it more closely with dividend taxation.

3. Tax Rates for Foreign Companies Reduced:

  • Reduction in Corporate Tax Rate: To make India a more attractive destination for foreign investment, the corporate tax rate for foreign companies has been reduced from 40% to 35%. This move is intended to encourage more foreign companies to invest and operate in India.

1. Customs Duties:

  • Customs Duty Adjustments: The budget introduces various changes in customs duties, including reductions and exemptions for essential and critical goods. These adjustments aim to reduce the cost of importing key raw materials and intermediate goods, thereby supporting domestic industries and reducing the overall cost of production.

2. GST Reforms:

  • Streamlining GST: The budget proposes several reforms to simplify the Goods and Services Tax (GST) system. These may include:
  • Rate Adjustments: Potential changes in GST rates on specific goods and services to correct anomalies and improve compliance.
  • Simplified Compliance: Measures to make GST filing and compliance easier for businesses, possibly through technological upgrades or procedural changes.

Overall Impact

These reforms collectively aim to create a more favorable economic environment, promote long-term growth, and enhance the overall efficiency of the tax system.

The budget for 2024 is poised to have a significant impact on various sectors of the economy and society. It is expected to address pressing issues such as economic growth, public debt, and social inequality. On one hand, the allocation of resources towards infrastructure, education, and healthcare could stimulate economic development and improve the quality of life for many citizens.

On the other hand, if the budget includes substantial increases in taxes or cuts in social spending, it could lead to public discontent and potential economic strain for lower-income households. Balancing these factors will be crucial to ensuring that the budget not only fosters sustainable growth but also supports equitable distribution of resources.

In summary, the taxation reforms outlined in Budget 2024 represent a transformative shift in India’s fiscal policy, designed to drive economic growth and improve taxpayer relief. By enhancing direct tax benefits, rationalizing capital gains taxation, and adjusting corporate tax rates, the budget aims to create a more conducive environment for investment and economic activity.

Additionally, changes in customs duties and GST reforms seek to streamline compliance and reduce costs for businesses. Overall, these reforms are expected to simplify the tax process and encourage investment, and contribute to a more dynamic and inclusive economy. For individuals and businesses, understanding these changes is crucial for effective financial planning and compliance.

Legal Equity

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