The Parliament completed the Budget exercise on August 8, with the Rajya Sabha returning the Finance (No.2) Bill, 2024, to the Lok Sabha. It was heartening to see the Finance Minister meeting professionals and other stakeholders in Bengaluru and other cities, and heed their concerns to make suitable changes to the capital gains tax proposals. Let’s look at the final individual tax proposals under various heads of income that will come into force soon.
Salary
With the government devoting itself to making changes only under the new tax regime, the tax slabs and rates is as follows:
The Standard Deduction has been raised from Rs 50,000 to Rs 75,000. Non-government employers have been allowed to raise the deduction for contribution towards the National Pension System from 10% to 14%. Rates of surcharge and rebate have been kept the same. Again, all the changes are only available under the new regime. The rationale for not tinkering with the old ‘optional’ regime is evidently to nudge more taxpayers into the new regime.
House property
To prevent tax evasion, property owners who’ve let out their place will have to declare their rental income under the head ‘income from house property’, instead of the prevailing practice of clubbing it under the head of “profits and gains of business or profession”.
The amount received as rent through the year, is classified as ‘gross annual value’ and not all of it will be subject to tax.
For one, a landowner is allowed to deduct the property tax paid to the municipality to arrive at a ‘net annual value’. He/she is also allowed to deduct a flat 30% of this as Standard Deduction towards repairs, renovations and other expenditure.
In case the property rented out is subject to a housing loan, the interest paid can also be deducted. Only the remnant amount is subject to tax -under the head of ‘house property’. This clampdown exclusively identifying income from property is bound to find some taxpayers having a higher tax outgo.
Capital Gains
One segment that saw some real shakedown in this Budget is the capital gains, with a clear cut definition of what constitutes short-term and long-term capital gains. Income from sale of any listed property held for 12 months or less and other assets such as unlisted securities, immovable property and gold, held under 24 months, account as short term capital gains. Any holding period beyond these timelines are long term capital gains. Interestingly, gains from the sale of unlisted debentures and bonds are deemed as short-term capital gains, immaterial to the holding tenure.
The Budget has raised the short-term capital gains tax on specified listed securities to 20% from 15%. For long-term capital gains the flat rate has been raised to 12.5% from 10%, across asset class and taxpayer profiles. One relief offered on this end is that the exemption limit on the long-term gains earned from the sale of listed equity shares and equity equity-oriented mutual funds has been increased from Rs. 1 lakh to Rs. 1.25 lakhs.
On long-term gains from sale of immovable property, grandfathering provisions can be availed by individuals and Hindu Undivided Family taxpayers. For them, gains from sale of immovable property acquired before the ‘cut-off date’ i.e. July 23, 2024, will be subject to 20% tax, if existing indexation benefit (wherein taxpayers commute the gains after adjusting for inflation) is opted for. If the indexation benefit is foregone, the tax levy will be 12.5%. Gains from the sale of an immovable property acquired on or after the cut-off date shall be at 12.50% without indexation benefit for all.
If a taxpayer incurs a loss from the sale of immovable property acquired before or after the cut-off date, he/she cannot avail of indexation benefits from now on.
Other sources
Deduction of one-third of the family pension or Rs 15,000 (whichever is lower) under the head ‘income from other sources’, has been raised to Rs 25,000 - again, only for those who’ve embraced the new tax regime.
According to a press statement issued by the government, 5.27 crore (or 72%) of the 7.28 crore taxpayers who filed their returns for the assessment year 2024-25, have opted for the default new tax regime.
Given that the new tax regime just turned more attractive post-July 23, there may be more taxpayers willing to make the switch. However, such a switch would entail recalibration of their taxes and employers may not be willing to undertake that exercise. The Central Board of Direct Taxes in its upcoming Circular on tax deduction at source (TDS) from salary – after the President’s Assent – should allow the employers to offer the option. Individual taxpayers, of course, will always have the option of making that leap at the time of filing returns next year.
(The author is founder, CEO of Shree Tax Chambers)