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 15 changes to understand their impact.
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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:
| Income Range (₹) | Tax Rate |
|---|---|
| ₹0–3,00,000 | 0% |
| ₹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% |
For taxpayers earning ₹15,00,000 annually, this structure results in savings of up to ₹17,500 compared to the old 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, indexation benefits for LTCG on house property have been partially removed, increasing the tax burden for property investors. Strategic planning is essential to minimise the impact of these changes.
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:
- 194D: Insurance commission.
- 194DA: Payments under life insurance.
- 194G: Commission on lottery tickets.
- 194H: Brokerage and commission.
- 194M: Payments to contractors and professionals.
This uniformity reduces confusion while ensuring streamlined tax collection.
Claiming TDS/TCS Tax Credit
Taxpayers can now claim credits for Tax Deducted at Source (TDS) or Tax Collected at Source (TCS) from multiple sources to reduce their taxable income.
- For example, if TDS is deducted on rent and salary, the credits can be combined to lower overall liability.
- This flexibility simplifies tax planning and ensures that taxpayers don’t lose out on deductions.
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 bore 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 10% will now apply to purchases of luxury goods exceeding ₹10 lakh.
- This includes luxury cars, designer jewelry, and premium electronics.
- Effective January 2025, the rule targets high-value transactions to ensure tax compliance.
Amendments to TDS on Property Sales
For property sales exceeding ₹50 lakh, TDS will now be calculated on the entire sale value, irrespective of ownership proportions.
- Earlier, only the seller’s share was considered.
- This ensures accurate tax collection but requires careful planning in joint property transactions.
TDS on RBI Floating Rate Bonds
Interest income exceeding ₹10,000 per month from RBI floating rate bonds will attract TDS starting October 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 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 to reopen old ITRs has been halved from 10 years to 5 years for cases 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.
