13 Income Tax Rule Changes in 2024 That Will Impact Your ITR Filing in 2025

The income tax reforms announced in 2024 have introduced a range of updates that will influence your Income Tax Return (ITR) filing in 2025. These changes focus on simplifying compliance, promoting fairness, and encouraging taxpayers to embrace the new tax regime. Let’s delve deeper into each of the 13 changes to understand their impact.

New Income Tax Slabs

The revised tax slabs in the new regime are designed to reduce the tax burden for many taxpayers. With no tax up to ₹3,00,000, this regime especially benefits low and middle-income earners. The new slabs are:

For taxpayers earning ₹15,00,000 annually, this structure results in savings of up to ₹17,500 compared to the earlier tax slab rates in the new  regime. However, you must forgo certain exemptions and deductions, like those under Section 80C, when opting for the new regime.

Standard Deduction Limit Increased

The standard deduction provides relief by reducing taxable income. In 2024, the limits have been raised under the new regime:

• Salaried individuals can now claim ₹75,000, up from ₹50,000.
• Family pensioners enjoy a revised deduction of ₹25,000, previously ₹15,000.

This enhancement is intended to make the new regime more appealing, but the old regime’s standard deduction remains unchanged. Taxpayers must assess their situation to decide which regime offers more benefits.

Higher Deduction for Employer’s NPS Contribution

Under Section 80CCD(2), the employer’s contribution to the National Pension System (NPS) is now eligible for a deduction of 14% of basic salary, an increase from 10%.

• This increase is exclusive to the new tax regime.
• It boosts retirement savings for employees in private and public sectors, incentivising long-term financial security.

Employers contributing to NPS must ensure compliance with the new rate, benefiting employees through additional tax savings.

Revised Tax Rates for LTCG and STCG

• Short-Term Capital Gains (STCG): Tax on equity investments has been raised to 20%, up from 15%. This may impact frequent traders and short-term investors.
• Long-Term Capital Gains (LTCG): Gains on all assets are now taxed at 12.5%.

However, the option to calculate Long-Term Capital Gains (LTCG) on house property with or without indexation, allows taxpayers to select the method that results in the most favorable outcome for them.

New Holding Period Rules for Capital Gains

The definition of “long-term” investments has been revised to align with global standards:

• Listed securities: Must be held for at least 12 months.
• Unlisted securities: Require a holding period of 24 months.

Investors selling assets before these durations will pay short-term capital gains tax, which is generally higher. This change emphasises long-term wealth creation over speculative trading.

Rationalised TDS Rates

From October 1, 2024, a uniform TDS rate of 2% applies to various payments, simplifying compliance for businesses and individuals. Key sections impacted include:

• 194DA: Payments under life insurance.
• 194G: Commission on lottery tickets.
• 194H: Brokerage and commission.
• 194M: Payments to contractors and professionals.

From April 1, 2025, TDS rate of 2% will apply for payment of Insurance Commission under section 194D.

This uniformity reduces confusion while ensuring streamlined tax collection.

TCS Credit Transfer

The ability to transfer TCS credits between individuals is a game-changer for families.

• For instance, parents paying TCS on a child’s tuition fees abroad can transfer the credit to the child.
• This ensures better utilisation of tax credits and reduces financial strain on families.

Tax on Share Buybacks

Share buybacks will now be taxed in the hands of shareholders at their applicable slab rate.

• Previously, companies used to bear this tax burden.
• The change aligns the taxation of buybacks with dividend taxation, promoting consistency in tax policies.

TCS on Luxury Goods

A Tax Collected at Source (TCS) of 1%  will now apply to purchases of luxury goods exceeding ₹10 lakh.

• This includes luxury cars, designer jewellery, and premium electronics.
• Effective January 1, 2025, the rule targets high-value transactions to ensure tax compliance.

TDS on RBI Floating Rate Bonds

Interest income exceeding ₹10,000 per annum  from RBI floating rate bonds will attract TDS starting October 1, 2024.

• This rule ensures parity in tax treatment across various fixed-income instruments.

Vivad se Vishwas 2.0 Scheme

The second phase of this dispute resolution scheme allows taxpayers to settle pending litigation with the Income Tax Department.

• It reduces the burden of legal costs and offers a one-time opportunity to resolve disputes.

Mandatory Aadhaar Number

From October 1, 2024, Aadhaar enrollment numbers will no longer be valid for filing ITRs or applying for PAN.

• Taxpayers must provide their Aadhaar number to comply with this rule.
• This change ensures transparency and improves tracking of tax compliance.

Revised Time Limit for Reopening Old ITRs

The time limit for reopening old ITRs has been reduced from 10 years to 5 years, where the income escaping assessment exceeds ₹50 lakh.

• This change balances the need for scrutiny with the taxpayers’ right to timely resolution.

Conclusion

The 2024 tax reforms aim to simplify compliance, promote fairness, and encourage adoption of the new tax regime. While many changes bring opportunities for savings, others demand careful planning to mitigate higher tax liabilities. Stay informed, plan your taxes wisely, and consult a tax advisor to make the most of these updates.

Start preparing now to ensure a seamless ITR filing experience in 2025.