New Income Tax and Capital Gains Tax Structure

24 July, 2024

Synopsis:

• Amendments to income tax slabs under the new tax regime.

• LTCG on certain financial instruments hiked to 12.5%.

• STCG tax has been raised to 20% from 15%.

• STT on the sale of derivatives contracts hiked.
  
  

The Union Budget 2024, presented by Finance Minister Nirmala Sitharaman brought several key income tax announcements aimed at boosting economic growth, simplifying the tax structure, and providing relief to various segments of the population.

For instance, the Finance Minister has proposed a hike in Long-Term Capital Gains (LTCG) tax on certain financial instruments to boost revenue collection. On the other hand, income tax slabs have tweaked under the new tax regime to encourage more savings for the salaried class. Furthermore, Nirmala Sitharaman has proposed revisions in the applicable rates for Securities Transaction Tax (STT), customs duty, and corporate taxes.

This article aims to demystify the proposed changes in the direct and indirect taxation structures in the Union Budget 2024-25.

Proposed changes in the new tax regime slabs

The Finance Minister during her budget speech in Parliament, proposed several changes to the personal income tax slabs under the new tax regime. As a result of these changes, salaried taxpayers can save up to ₹17,500 per financial year under new tax regime.

Key changes for the income tax slabs under the new tax regime:

• The standard deduction for salaried taxpayers has been increased to ₹75,000 from ₹50,000. All categories of salaried individuals can claim this deduction while filing their Income Tax Return (ITR) under the new tax regime.

• The new tax slabs under the new tax regime have been tweaked to ensure more savings for salaried taxpayers. However, no changes have been made to the income tax slabs under the old tax regime.

• An income of up to ₹3 lakh will continue to be exempted from the income tax under the new tax regime. The table below depicts the latest income tax slabs:
  
  

Proposed changes in the capital gains taxes

The Finance Minister Nirmala Sitharaman has also proposed multiple changes to the existing capital gains taxation structure in India. These changes are aimed at simplifying the tax structure and strengthening revenue collection for the government. The proposed changes include:

• Certain financial instruments will now attract Short-Term Capital Gains (STCG) tax of 20% instead of the earlier 15%.

• Long-Term Capital Gains (LTCG) tax on certain financial instruments has been hiked to 12.5% from the existing 10%.

• All other financial and non-financial assets will continue to attract capital gains tax at the existing rates.

• Unlisted Bonds, Debentures, and Debt Mutual Funds will attract capital gains tax irrespective of the holding period.

• The exemption limit for capital gains tax on specific financial assets has been raised to ₹1.25 lakh
  
  

Proposed changes in customs duties

Besides income tax and capital gains tax, the Finance Minister also proposed changes to customs duty rates during the budget speech. Customs duty refers to the tax imposed on the movement of goods across international borders. Revisions in customs duty rates may result in specific items getting cheaper or more expensive. The proposed changes to customs duty rates are:

• Customs duty on gold and silver reduced to 6% and on platinum to 6.4%.

• Customs duty on mobile phones, mobile components, and chargers reduced to 15%.

• Duties exempted on 25 critical minerals.

• Duty on ammonium nitrate and non-biodegradable plastic raised to 10% and 25% respectively.

• Duty on Methyl Diphenyl Diisocyanate (used for spandex yarn manufacturing) raised to 7.5%.

• Duty changes proposed on X-ray tubes and flat panel detectors.

• Duty reduction proposed on raw materials for leather and textile industries.

• Oxygen-fused copper exempted from customs duty.

• Three more medicines used for cancer treatment are exempted from customs duty.
  
  

Proposed changes in STT

Securities Transaction Tax (STT) is levied on the sale and purchase of securities on the recognised stock exchanges in India. With the Finance Minister Nirmala Sitharaman also proposed an increase in STT rates on certain transactions, stock trading might become costlier. Further, Finance Minister said share buybacks, announced by companies, will be taxed in the hands of the recipient.

These changes include:

• STT on the sale of Futures hiked to 0.02% from 0.0125%

• STT on the sale of Options hiked to 0.1% from 0.0625%

With HDFC Bank by your side, you can plan your investments better and maximise your tax savings.

Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.