Top Ten Amendments in India's Direct Tax System - Budget Proposal 2024–2025

Numerous changes to India's direct tax system have been made in the Budget Proposal 2024–2025 with the goals of streamlining the tax code, lowering litigation, and spurring economic expansion. We will examine the top ten amendments that will significantly affect taxpayers in this blog post, along with a thorough examination of each modification.

1. Standard Deduction Increase: Benefiting Middle-Class Taxpayers

The rise in the standard deduction for salary income from Rs 50,000 to Rs 75,000 has given middle-class taxpayers much-needed respite. Approximately 3.5 crore taxpayers will benefit from this reform, which could save them up to Rs 12,500 a year in taxes. The higher standard deduction will also make tax compliance easier because taxpayers won't have to keep records of costs in order to make deductions.

2. Angel Tax Elimination: A Lifesaver for Startups

Introduced in 2012, the angel tax has been eliminated as of April 1, 2024. Angel investors funded startups that were subject to this tax, which put a heavy financial load on these newly established companies. The startup ecosystem will receive a much-needed boost from the elimination of the angel tax, which will promote innovation and entrepreneurship.

3. Buyback Tax Withdrawal: A Benefit for Stockholders

The buyback tax, which was imposed in 2019, has been removed, giving shareholders who were affected by it comfort. In the future, buyback amounts will be subject to shareholder dividend taxation, in line with the tax laws in place prior to 2019. This adjustment will lessen the tax burden on shareholders and streamline the tax treatment of buybacks.

4. Raising the Family Pension Deduction: Aiding Families

Support for families receiving pension income has been extended with an increase in the family pension deduction from Rs 15,000 to Rs 25,000. About 2.5 lakh families will profit from this adjustment, which could save them up to Rs 5,000 a year in taxes.

5. Raising the Monetary Cap for Appeal Filings: A Drop in Litigation

The maximum amount that can be used to file an appeal with the Tax Tribunal, High Court, or Supreme Court is now Rs 60 lakh, Rs 2 crores, or Rs 5 crores, respectively. Because taxpayers won't have to submit appeals for lower sums, there will be a large decrease in the number of active cases as a result of this adjustment, which will reduce litigation.

6. Reassessment Provision Rationalization: A Tax Compliance Simplifier

Depending on the amount of income that was lost or is projected to be lost, there are now only three years and three months or five years and three months to issue a notice of reassessment following the conclusion of the relevant assessment year. With the elimination of the requirement for taxpayers to keep documents for lengthy periods of time, this reform will make tax compliance simpler.

7. Improving the Boundaries for Denying Compensation to Collaborating Parties: A Strengthening of Alliances

The restrictions on paying employees of a company less than the maximum amount have been tightened, which has helped strengthen partnerships. About 1.5 lakh partnerships will profit from this reform, which could save them up to Rs 10,000 in taxes annually.

8. Implementing Withholding Tax on Partner Payments: Expanding the Tax Base

To include payments to partners of the firm on any account (including capital account) that include commission, bonus, salary, remuneration, and interest under the withholding tax net, a new section 194T has been adopted. Beginning on April 1, 2024, and lasting through the end of the fiscal year, sums totaling more than Rs 20,000 will be subject to this 10% withholding tax.

9. Removing the Long-Term Capital Gains Indexation Benefit: Simplifying Tax Compliance

For the purpose of calculating any long-term capital gains, the indexation benefit that was previously provided by section 48's second proviso has been eliminated. Due to the elimination of the requirement for taxpayers to keep indexation documents, this reform will make tax compliance simpler.

10. Shareholder Relief from the Company's Loss on Cost of Repurchased Share

Any profit realized on a later sale may be offset by the loss on the share that the business had to pay to buy it back. With effect from October 1, 2024, this modification will relieve stockholders who were liable for this tax.

In Summary

Numerous changes to India's direct tax system have been made in the Budget Proposal 2024–2025 with the goals of streamlining the tax code, lowering litigation, and spurring economic expansion. These changes will have a big effect on taxpayers, helping families, startups, and middle-class taxpayers. It is imperative that taxpayers comprehend these modifications.

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