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The much-awaited Union Budget 2024-25 has been presented by our hon’ble Finance Minister Smt. Nirmala Sitharaman today on 23rd July 2024, before the Parliament. The budget speech of FM highlighted some very welcome budget amendments in the direct tax domain. However, the Fine Print of the Finance (No.2) Bill, 2024, revealed some additional very significant and critical budget amendments in the direct tax domain, which are being analysed and explained below, for ready reference of Readers.

1. Amendments pertaining to Capital Gains

a. Section 2(42A) of the Act is proposed to be amended to provide that for all listed securities, the holding period to qualify as long-term capital gain, will be 12 months and for all other assets, it shall be 24 months.

b. The rate for short-term capital gain under provisions of section 111A of the Act on STT paid equity shares, units of equity oriented mutual fund and unit of a business trust is proposed to be increased to 20% from the present rate of 15%.

c. The rate of long-term capital gains under provisions of various sections of the Act is proposed to be pegged at 12.5% without indexation benefit, in respect of all category of assets. This rate earlier was 10% for STT paid listed equity shares, units of equity-oriented fund and business trust under section 112A and for other assets it was 20% with indexation under section 112.

d. An exemption of gains upto 1.25 lakh (aggregate) is proposed for long-term capital gains under section 112A on STT paid equity shares, units of equity oriented fund and business trust, thus, increasing the previously available exemption which was upto 1 lakh of income from long term capital gains on such assets.

e. Unlisted debentures and unlisted bonds are proposed to be taxed at applicable rate slab rate of the investor, whether short-term or long-term, by including them under provisions of section 50AA of the Act.

f. The indexation benefit available under second proviso to section 48 is proposed to be removed for calculation of any long-term capital gains which is presently available for property, gold and other unlisted assets.

g. It is proposed to substitute clause (iii) of section 47 and its proviso, to provide that nothing contained in section 45 shall apply to transfer of a capital asset, under a gift or will or an irrevocable trust, by an individual or a Hindu undivided family. Thus, gifts made by companies will be considered as ‘transfer’ only u/s 45, for the purpose of capital gains tax.

These amendments shall come into effect from the 23rd day of July, 2024.

Birds’ Eye View/Tabular Analysis of Taxability of Different Class of Assets

a. The impact of above stated Budget amendments on the taxability of different categories/class of financial and non-financial assets, w.e.f. 23.7.2024 is being tabulated below, for ready reference.

Asset Class	Existing Holding Period	Proposed Holding Period	Existing LTCG Tax Rate	Proposed LTCG Tax Rate	Existing STCG Tax Rate	Proposed STCG Tax Rate
Listed Equity Securities	12 months	12 months	10% without indexation	12.5% without indexation	15%	20%
Listed Equity Mutual Funds (with 65% or more equity contribution)	12 months	12 months	10% without indexation	12.5% without indexation	15%	20%
Listed Debt Mutual Funds (with upto 35% equity contribution)/ Market Linked Debentures	N/A	N/A	taxable as STCG at applicable slab rate	No Change	Taxable at applicable slab rate	No change
Listed Business Trusts/REITs/ InVITs	36 months	12 months	10%	12.5%	15%	20%
Unlisted Equity Securities	24 months	24 months	20% with indexation	12.5% without indexation	Slab rate	Slab rate
Unlisted Bonds & Debentures	24 months	24 months	20% with indexation	Slab rate without indexation	Slab rate	Slab rate
Immovable Property	24 months	24 months	20% with indexation	12.5% without indexation	Slab rate	Slab rate

b. The comparative analysis of tax liability in respect of long-term capital gain on sale of immovable property, under the existing provisions of the Income Tax Act, and after the proposed budget amendments, for different assessment years, is tabulated as under:

From the above comparative analysis, it becomes clear and evident that the Break Even Point of the tax liability of higher LTCG tax rate of 20% with indexation benefit (as per pre-amended provisions) and the lower LTCG tax rate of 12.5% without indexation benefit (as per proposed Budget amendment), is coming at the Sale Consideration of Rs. 8,00,000 assuming a price appreciation of roughly around 8 times, if it is assumed that the Property was purchased in AY 2001-02 and sold in FY 2024-25. This roughly translates into a CAGR of 9%, which is the Break Even Point needed for the property price appreciation, where both the pre-amended and post budget LTCG tax liabilities become equal.

At a sale consideration of less than the break-even point of Rs 8 lakhs, (8 times increase), say Rs 3 lakhs or Rs 5 lakhs, the pre-amended provision of higher tax rate of 20% with indexation, is more beneficial as compared to the amended provision of reduced tax rate of 12.5% without indexation on long term capital gains of property, if the said property was purchased in comparatively older/earlier assessment years, viz, AY 2012-13 and prior years at a sale consideration of Rs 3 lakhs and AY 2008-09 and prior years at a sale consideration of Rs 5 lakhs.

2. Further incentivisation of New Personal Tax Regime: The new personal tax regime has been made further sweeter, by way of the undermentioned budget proposals.

a. Reduction in Tax Slab Rates: The Finance (No. 2) Bill, 2024, proposes to reduce the tax slab rates, in the new personal tax regime, as under:

Sl. No.	Total income	Rate of tax
(1)	(2)	(3)
1.	Upto Rs. 3,00,000	Nil
2.	From Rs. 3,00,001 to Rs. 7,00,000*	5%
3.	From Rs. 7,00,001 to Rs. 10,00,000**	10%
4.	From Rs. 10,00,001 to Rs. 12,00,000	15%
5.	From Rs. 12,00,001 to Rs. 15,00,000	20%
6.	Above Rs. 15,00,000	30%

 

* The income levels between Rs. 6 to Rs. 7 lakhs, as per the existing slab rate in the new personal tax regime is taxable @ 10%. So, the proposed amendment of taxing the same @ 5% is resulting in a tax saving of Rs. 5,000/-.

** The income levels between Rs. 9 to Rs. 10 lakhs, as per the existing slab rate in the new personal tax regime is taxable @ 15%. So, the proposed amendment of taxing the same @ 10% is resulting in a tax saving of Rs. 5,000/-.

b. Increase in Standard Deduction Limit: The standard deduction limit u/s 16(ia) of the Income Tax Act, in case of salaried class has been proposed to be increased from Rs. 50,000/- to Rs. 75,000/-.

c. Increase in Family Pension Deduction Limit: The deduction in respect of family pension u/s 57(iia) of the Income Tax Act, is proposed to be increased from existing limit of Rs. 15,000 to Rs. 25,000.

d. Increase in Deduction Limit of Employers’ Contribution to NPS: The deduction available under section 80CCD(2)(b) of the Income Tax Act, in respect of private sector employer’s contribution to National Pension Scheme (NPS) has been proposed to be increased from the present 10% of salary to 14% of the salary of the concerned employees.

These amendments will take effect from the 1st day of April, 2025, and will accordingly apply to assessment year 2025-26 and subsequent assessment years.

3. Rationalisation of Tax Deducted at Source Rates

To improve ease of doing business and better compliance by taxpayers, the TDS rates are proposed to be rationalised as under:

TDS Section	Present TDS Rate	Proposed TDS Rate	With effect from
Section 194D - Payment of insurance commission (in case of person other than company)	5%	2%	1.4.2025
Section     194DA    -                 Payment  in respect of life insurance policy	5%	2%	1.10.2024
Section 194G – Commission on sale of lottery tickets	5%	2%	1.10.2024
Section 194H - Payment of commission or brokerage	5%	2%	1.10.2024
Section 194-IB - Payment of rent by certain individuals or HUF	5%	2%	1.10.2024
Section 194M - Payment of certain sums by certain individuals or Hindu undivided family	5%	2%	1.10.2024
Section 194-O - Payment of certain sums by e-commerce operator to e-commerce participant	1%	0.1%	1.10.2024
Section 194F relating to payments on account of repurchase of units by Mutual Fund or Unit Trust of India	Proposed to be omitted		1.10.2024

4. Relaxation in Provisions pertaining to Prosecution u/s 276B of the Act

It is proposed to amend section 276B of the Act to provide for exemption from prosecution to a person covered under clause (a) of the said section, if the payment of tax deducted in respect of a quarter has been made to the credit of the Central Government at any time on or before the time prescribed for filing the statement of such quarter (TDS Return), under sub-section (3) of section 200 of the Act.

5. Reduction in Time Limitation for Passing Orders u/s 201(1)/(1A) deeming any person to be assessee in default

It is proposed to amend sub-section (3) of section 201 and insert new sub- section (7A) in section 206C of the Act to provide that no order shall be made deeming any person to be assessee in default for failure to deduct/ collect the whole or any part of the tax from any person, at any time after the expiry of six years from the end of the financial year in which payment is made or credit is given or tax was collectible or two years from the end of the financial year in which the correction statement is delivered, whichever is later.

The amendments will take effect from the 1st day of April, 2025.

6. Extension in the Scope of Lower Deduction / Collection certificate of Tax at Source

To facilitate ease of doing business and to provide an option to seek a lower deduction certificate so as to reduce compliance burden on the assessee, it is proposed:

a)         to amend sub-section (1) of section 197 to bring section 194Q in its ambit

b)         to amend sub-section (9) of the section 206C to bring sub-section (1H) of section 206C in its ambit.

The amendments will take effect from the 1st day of October, 2024.

7. Abolition of the Angel Tax

The Finance (No. 2) Bill, 2024 proposes to insert a Sunset Clause in Share Issue Valuation Norm in section 56(2)(viib) of the Income Tax Act, to provide that the provisions of this clause shall not apply from the assessment year 2025-26.

This amendment is proposed to be made effective from the 1st day of April, 2025, and shall accordingly apply from assessment year 2025-26.

8. Reinstatement of Search based Assessments/ Block Assessments & Reduction in Time Period of Reassessments

The Finance Act 2021 had subsumed the erstwhile search-based assessments provisions u/s 153A to 153C of the Income Tax act, in the new Reassessment regime provisions u/s 147-151 of the Act. However, the Finance (No.2) Bill, 2024, has reinstated the erstwhile search-based assessments provisions popularly referred to as Block Assessments pursuant to search & seizure for searches conducted on or after 1.9.2024, with the substitution of a New Chapter XIV- B, containing sections 158B – 158BI of the Income Tax Act.

It is pertinent to mention that the substituted section 158BA(2) of the Act provides for the abatement of all pending assessments falling in the block period of 6 years. Thus, the well settled legal position, as upheld by the hon’ble Supreme Court in the case of Abhisar Buildwell, that no additions can be made in respect of completed assessments, on the date of search, in the absence of discovery of any incriminating material during the search, will continue to hold as good and relevant law.

Further the maximum time period of 10 years for reopening of assessments u/s 149 of the Act, has been reduced to 5 years.

These are indeed welcome developments. The changes introduced in the Finance Act 2021 in the search-based assessments and reassessment regime on theoretical ideal considerations of reducing litigations, didn't meet the desired results, and infact were resulting in otherwise, so the Legislature has made these much needed amendments aimed at reducing litigations and facilitating tax certainty by ensuring that the reopening sword u/s 148 doesn't continue to hang for 10 long years.

9. Extension in the period of withholding of the refund u/s 245 of the Act

The period of withholding of the refund u/s 245 of the Act is proposed to be extended up to sixty days from the date on which such assessment or reassessment is made, than the present limit of 30 days.

10. Rationalisation of the provisions of Charitable Trusts and Institutions

139.     The two tax exemption regimes for charities are proposed to be merged into one. It is proposed that the first exemption regime of the Charitable Trusts provided u/s 10(23C) of the Act be sunset and trusts, funds or institutions be transited to the second exemption regime provided u/s 11-13, in a gradual manner. These amendments will take effect from the 1st day of October, 2024.

11. Allowability of TCS Credit of salaried employees in TDS deduction u/s 192 of the Act, by employers.

It is proposed to amend sub-section (2B) of section 192 to expand its scope to include any tax deducted or collected under the provisions of Chapter XVII-B or Chapter XVII-BB, as the case may be, to be taken into account for the purposes of making the deduction under sub-section (1) of section 192.

The amendment will take effect from the 1st day of October, 2024.

12. Rationalisation of Provisions pertaining to Partnership Firms

a. Increase in limit of remuneration to working partners of a firm allowed as deduction

It is proposed to amend section 40(b)(v) of the Act to increase the limit of remuneration to working partners in a partnership firm, which is allowed as deduction, as under:

(a)	on the first Rs. 6,00,000 of the book- profit or in case of a loss	Rs. 3,00,000 or at the rate of 90    per    cent    of        the     book- profit, whichever is more;
(b)	on the balance of the book-profit	at the rate of 60 per cent.

 

The amendment to will take effect from the 1st day of April, 2025 and will, accordingly, apply in relation to assessment year 2025-2026 and subsequent years.

b. TDS on payment of salary, remuneration, interest, bonus or commission by partnership firm to partners

It is proposed to insert a new TDS section 194T to bring payments such as salary, remuneration, commission, bonus and interest to any account (including capital account) of the partner of the firm under the purview of TDS for aggregate amounts more than Rs 20,000 in the financial year. Applicable TDS rate will be 10%. The provisions of section 194T of the Act will take effect from the 1st day of April, 2025.

13. Direct Tax Vivad se Vishwas Scheme, 2024

Keeping in view the success of the previous Vivaad Se Vishwas Act, 2020 and the mounting pendency of appeals at CIT(A) level, introduction of a Direct Tax Vivad se Vishwas Scheme, 2024 is proposed with the objective of providing a mechanism of settlement of disputed issues, thereby reducing litigation without much cost to the exchequer.

It is proposed that this Scheme shall come into force from the date to be notified by the Central Government. The last date for the Scheme is also proposed to be notified.

14. Abolition of Equalisation Levy of 2%

It is proposed that this equalisation levy at the rate of 2% shall not be applicable to consideration received or receivable for e-commerce supply or services, on or after the 1st day of August, 2024. However, corresponding exemption available u/s 10(50) of the Act, to be withdrawn.

These amendments will take effect from the 1st day of August, 2024.

15. Removal of Penalty for Non Disclosure of Foreign Income & Moveable Assets, upto a value of Rs 20 lakhs, in ITR

It is proposed to amend the provisos to sections 42 and 43 of the Black Money Act to provide that the provisions of the said sections shall not apply in respect of an asset or assets (other than immovable property) where the aggregate value of such asset or assets does not exceed twenty lakh rupees. This amendment will take effect from the 1st day of October, 2024.

This amendment will take effect from the 1st day of October, 2024.

16. Taxability of entire Sum received by Shareholders from Companies on Buyback of shares, to be treated as Deemed Dividend in their hands, taxable at their Slab Rates        

It is proposed that the sum paid by a domestic company for purchase of its own shares shall be treated as dividend income in the hands of shareholders, who received payment from such buy-back of shares and shall be charged to income-tax at their respective applicable slab rates. No deduction for expenses shall be available against such dividend income while determining the income from other sources.

These amendments will take effect from the 1st day of October, 2024, and will accordingly apply to any buy-back of shares that takes place on or after this date.

For instance, Suppose Mr. A purchased 100 shares of M/s XYZ Ltd at a price of Rs. 50 per share i.e., for Rs. 5,000/-, in AY 2022-23. The company XYZ Ltd buyback these 100 shares from Mr. X on 1.10.2024, at a price of Rs. 70 per share, and pays the total sale consideration of Rs. 7,000/- to Mr. X.

Logically, Mr. X has earned a long-term capital gain of Rs. 20 per share, on the buyback of such shares. However, surprisingly, the Finance (No. 2) Bill, 2024 proposes to tax the entire sale proceeds of Rs. 7,000/- received by Mr. X as deemed dividend income, taxable at the applicable slab rate of Mr. X, without allowing him any deduction in respect of the cost of acquisition of Rs. 5,000/- being paid by Mr. X. The cost of acquisition of such 100 shares of Rs. 5,000 has been proposed to be treated as a capital loss, to be carried forward and adjusted against any other capital gain income of Mr. X, if at all it arises.  

17: Comprehensive Review of the Income Tax Act, 1961: Our hon’ble FM in her Budget Speech announced a comprehensive review of the Income-tax Act, 1961, to make it concise, lucid, easy to read and understand. This will reduce disputes and litigation, thereby providing tax certainty to the tax payers. It will also bring down the demand embroiled in litigation. The review is proposed to be completed in six months. She also informed that a beginning is being made in the Finance Bill by simplifying the tax regime for charities, TDS rate structure, provisions for reassessment and search provisions and capital gains taxation.

[This Article has also been published in Taxmann with the citation [2024] 164 taxmann.com 538 (Article)]