TAX PLANNING FOR FY 2024-25
Tax Planning for Individuals
INCOME TAX PLANNING FOR FY 2024-25
CONTAINS 5 PARTS
PART I : HIGHLIGHTS OF CHANGES IN TAX RULES FOR FY 2024-25 : READ THIS PART BELOW
PART 2 : TAX RATES / SLABS FOR FY 2024-25 CLICK HERE
PART 3 : TAX REBATES FOR FY 24-25 CLICK HERE
PART 4: INCOME TAX CALCULATOR FOR FY 2024-25 CLICK HERE
PART 5 : TAX ON RETIREMENT BENEFITS CLICK HERE
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READ OUR ARTICLE " TDS ON SALARY , PENSION AND PERQUISITES "
Read our article " CRYPTOCURRENCY TAXES IN INDIA " by clicking Here
PART I : HIGHLIGHTS OF CHANGES IN TAX RULES FOR FY 2024-25 : READ THIS PART BELOW
INCOME TAX CHANGES IN FY 2023-24
DIRECT TAXES : These proposals ( on Income Tax ) aim to maintain continuity and stability of taxation, further simplify and rationalise various provisions to reduce the compliance burden, promote the entrepreneurial spirit and provide tax relief to citizens
COMMON IT RETURN : We intend to roll out a next-generation Common IT Return Form for tax payer convenience, and also plan to strengthen the grievance redressal mechanism.
NEW TAX REGIME TO BE DEFAULT REGIME : We are also making the new income tax regime as the default tax regime. However, citizens will continue to have the option to avail the benefit of the old tax regime.
1. PERSONAL INCOME TAX : Currently, those with income up to Rs 5 lakh do not pay any income tax in both old and new tax regimes. I propose to increase the rebate limit to Rs 7 lakh in the new tax regime. Thus, persons in the new tax regime, with income up to Rs 7 lakh will not have to pay any tax.
2. INCOME TAX SLABS FOR FY 2023 -24 UNDER NEW REGIME
The second proposal relates to middle-class individuals. I had introduced, in the year 2020, the new personal income tax regime with six income slabs starting from Rs 2.5 lakh. I propose to change the tax structure in this regime by reducing the number of slabs to five and increasing the tax exemption limit to Rs 3 lakh. The new tax rates are:
1. Upto Rs.3,00,000 Nil
2. From Rs.3,00,001 to Rs.6,00,000 5 per cent.
3. From Rs.6,00,001 to Rs.9,00,000 10 per cent.
4. From Rs.9,00,001 to Rs.12,00,000 15 per cent.
5. From Rs.12,00,001 to Rs.15,00,000 20 per cent.
6. Above Rs.15,00,000 30 per cent.”;
a Tax rebate under Section 87 A is allowed up to an income of Rs 7. lakhs
b . Standard Deduction of Rs 50,000 allowed on salaries / pension
3. STANDARD DEDUCTION : My third proposal is for the salaried class and the pensioners including family pensioners, for whom I propose to extend the benefit of standard deduction to the new tax regime. Each salaried person with an income of Rs 15.5 lakh or more will thus stand to benefit by Rs 52,500.
4. SURCHARGE : My fourth announcement in personal income tax is regarding the highest tax rate which in our country is 42.74 per cent. This is among the highest in the world. I propose to reduce the highest surcharge rate from 37 per cent to 25 per cent in the new tax regime. This would result in reduction of the maximum tax rate to 39 per cent.
5. LEAVE ENCASHMENT : Lastly, the limit of Rs 3 lakh for tax exemption on leave encashment on retirement of non-government salaried employees was last fixed in the year 2002, when the highest basic pay in the government was Rs 30,000/- pm. In line with the increase in government salaries, I am proposing to increase this limit to Rs 25 lakh.
HIGHLIGHT OF BUDGET 2024 : NO CHANGE IN DIRECT OR INDIRECT TAXES
DIRECT TAX PROPOSALS :
• Short term gains of financial assets to attract 20% tax rate
• Long term gains on all financial an non-financial assets to attract a tax rate of 12.5%
• Increase in limit of exemption of capital gains on financial assets to ₹1.25 lakh per year ,
• Abolish ANGEL tax for all classes of investors.
• Simpler tax regime to operate domestic cruise
• Provide for safe harbour rates for foreign mining companies (Selling raw diamonds)
• Corporate tax rate on foreign companies reduced from 40% to 35% .
Listed financial assets held for more than a year will be classified as long term, while unlisted financial assets and all non-financial assets will have to be held for at least two years to be classified as long-term .
Unlisted bonds and debentures, debt mutual funds and market linked debentures, irrespective of holding period, however, will attract tax on capital gains at applicable rates.
New Tax Regime :
Standard Deduction for salaried employees increased from ₹50,000 to ₹75,000
Deduction on family pension for pensioners increased from ₹15,000 to ₹25,000
NEW TAX REGIME TAX RATES REVISED AS FOLLOWS :
1. Up to Rs 3.00 lakhs income : NIL
2. Rs 3.00 lakhs to 7.00 lakhs income : 5 % tax
3 . Rs 7.00 lakhs to 10.00 lakhs income : 10 % tax
4 . Rs 10.00 lakhs to 12.00 lakhs income : 15 % tax
5 . Rs 12.00 lakhs to 15.00 lakhs income : 20 % tax
Above Rs 15 lakhs income : 30 % tax
To read FM'S BUDGET SPEECH , CLICK HERE
UPDATE DATD 07.08.2024 : CHOICE TO BE GIVEN ON LTCG
Finance Minister had proposed , in her budget speech , LTCG tax at rate of 12.5 per cent on all financial and non-financial assets . Presently LTCG TAX on house properties is at 20 % with indexation benefits .
Now FM has proposed an amendment to the budget and the amendment to the budget offers an option to chose between the old regime and the new proposal and one can chose whichever offers a lower tax for the house properties purchased before 23.07.2024
INCOME TAX RULES CHANGES IN EARLIER YEARS
INCOME TAX CHANGES IN FY 2022-23
1. UPDATED RETURNS ON PAYMENT OF ADDITIONAL TAX :
"some taxpayers may realize that they have committed omissions or mistakes in correctly estimating their income for tax payment. To provide an opportunity to correct such errors, I am proposing a new provision 22 permitting taxpayers to file an Updated Return on payment of additional tax. This updated return can be filed within two years from the end of the relevant assessment year. "
2. Reduced Alternate minimum tax rate and Surcharge for Cooperatives
Alternate Minimum Tax at the rate of eighteen reduced to 15 % for co-operative societies and one half per cent. However, companies pay the same at the rate of fifteen per cent. the surcharge is to be reduced from present 12 per cent to 7 per cent for those co-operatives having total income of more than ` 1 crore and up to ` 10 crores. "
3. Tax relief to persons with disability .
The payment of annuity and lump sum amount to the differently abled dependent during the lifetime of parents/guardians, i.e., on parents/ guardians attaining the age of sixty years is allowed tax deductions
4. Parity between employees of State and Central government
" At present, the Central Government contributes 14 per cent of the salary of its employee to the National Pension System (NPS) Tier-I. This is allowed as a deduction in computing the income of the employee. However, such deduction is allowed only to the extent of 10 per cent of the salary in case of employees of the State government. To provide equal treatment to both Central and State government employees, I propose to increase the tax deduction limit from 10 per cent to 14 per cent on employer’s contribution to the NPS account of State Government employees as well. "
5. Scheme for taxation of virtual digital assets .
1. Any income from transfer of any virtual digital asset shall be taxed at the rate of 30 per cent.
2. No deduction in respect of any expenditure or allowance shall be allowed while computing such income except cost of acquisition.
3. Further, loss from transfer of virtual digital asset cannot be set off against any other income.
4. Further, in order to capture the transaction details. TDS on payment made in relation to transfer of virtual digital asset at the rate of 1 per cent of such consideration above a monetary threshold.
5. Gift of virtual digital asset is also proposed to be taxed in the hands of the recipient.
6. Rationalization of Surcharge : TO BE CAPPED AT 15 % for LTCG
There is no change proposed in tax SLABS / RATES for the year fy 2022-23 . The Rates / slabs which are already prevalent in year 2021-22 can be used to reduce the taxable income for the financial year 2022-23 also .
INCOME TAX RULES CHANGES IN FY 2021-22 :
1. INTEREST ON HOUSING LOANS : In the July 2019 Budget, an additional deduction of interest, amounting to Rs 1.5 lakh, for loan taken to purchase an affordable house was allowed which is up to 31.03.2021 . Now it is proposed to extend the eligibility of this deduction by one more year, to 31st March 2022. The additional deduction of Rs 1.5 lakh shall therefore be available for loans taken up till 31st March 2022, for the purchase of an affordable house
2. FOR SENIOR CITIZENS : Exemption from filing income tax returns for the senior citizens who are 75 years of age and above. and who only have pension and interest income . The paying bank will deduct the necessary tax on their income .
3. PRE-FILLING OF IT RETURNS : in order to ease compliance for the taxpayer, details of salary income, tax payments, TDS, etc. already come pre-filled in income tax returns. To further ease filing of returns, details of capital gains from listed securities, dividend income, and interest from banks, post office, etc. will also be pre-filled.
4. RE-OPENING OF IT RETURNS : Reduce the time-limit for re-opening of assessment of Income Tax returns to 3 years from the present 6 years. In serious tax evasion cases too, only where there is evidence of concealment of income of `50 lakh or more in a year, can the assessment be re-opened up to 10 years. Even this reopening can be done only after the approval of the Principal Chief Commissioner, the highest level of the Income Tax Department.
5. DISPUTE RESOLUTION COMMITTEE : Constitute a Dispute Resolution Committee for small tax payers in the cases of litigation , which will be faceless to ensure efficiency, transparency and accountability. Anyone with a taxable income up to `50 lakh and disputed income up to `10 lakh shall be eligible to approach the Committee. For the purpose Government to establish a National Faceless Income Tax Appellate Tribunal Centre. All communication between the Tribunal and the appellant shall be electronic. Where personal hearing is needed, it shall be done through video-conferencing.
6 . TAX AUDIT : Currently, if turnover exceeds Rs 1 crore, one to get your accounts audited. In the February 2020 Budget, the limit for tax audit was increased to Rs 5 crore for those who carry out 95% of their transactions digitally. To further incentivise digital transactions and reduce compliance burden, now the FM plans to increase this limit for tax audit for such persons from Rs 5 crore toRs 10 crore.
7. ADVANCE TAX PAYMENT ON DIVIDENDS : Dividend is taxable in the hands of shareholders from the FY 20-21 . Now it is proposed to make investors pay the the advance tax liability on dividend income only after the declaration/payment of dividend . for Foreign Portfolio Investors, deduction of tax on dividend income will be at at lower treaty rates .
8. TAX ON ULIP : It is proposed to allow tax exemption for maturity proceed of the ULIP having annual premium up to ` 2.5 lakh. However, the amount received on death shall continue to remain exempt without any limit on the annual premium. The cap of ` 2.5 lakh on the annual premium of ULIP shall be applicable only for the policies taken on or after 01.02.2021. Further, in order to provide parity, the nonexempt ULIP shall be provided same concessional capital gains taxation regime as available to the mutual fund.
9. TAX ON PF CONTRIBUTION : It was proposed in the budget to restrict tax exemption for the interest income earned on the employees’ contribution to various provident funds to the annual contribution of Rs 2.5 lakh. This restriction shall be applicable only for the contribution made on or after 01.04.2021. Subsequently This restriction limit was extended to Rs 5.00 lakhs , in certain special cases . The enhanced limit of Rs 5.00 lakhs will only be applicable where there the employer's contribution does not exceed statutory limit of 12 % of the basic pay in the total PF contribution . The bill shall be applicable only for the contribution made on or after 01.04.2021.
10. NON-FILING OF IT RETURNS : For the persons in whose case TDS/TCS of Rs 50,000 or more has been made for the past two years and who has not filed return of income, the rate of TDS/TCS shall be at the double of the specified rate or 5%, whichever is higher. This provision shall not be applicable for the transactions where full amount of tax is required to be deducted e.g. salary income, payment to non-resident, lottery, etc.
11. TDS ON PURCHASE OF GOODS : It is proposed to levy a TDS of 0.1% on a purchase transaction exceeding Rs 50 lakh in a year. In
order to reduce the compliance burden, it is also proposed to provide that the responsibility of deduction shall lie only on the persons whose turnover exceeds Rs 10 crore.
12. TAX EXEMPTION ON LTC CASH SCHEME FOR SALARIED EMPLOYEES : In order to provide relief to employees, it is proposed to provide tax exemption to the amount given to an employee in lieu of LTC subject to incurring of specified expenditure.
NOTE ; We find that more clarity is needed in case on Tax on PF Contribution . We hope IT Department may clarify on how interest will be segregated between investment before APRIL 2021 and after .
But most of the changes in Income tax rules were made for the FY 2020-21 which are continued for FY 21-22and FY 22-23 . One may go through those changes below :
HIGHLIGHTS OF CHANGES IN INCOME TAX RULES FROM FY 2019-2O TO FY 20-21
TCS ON FOREIGN EXCHANGE REMITTANCE / OVERSEAS TOUR PACKAGE
The following provisions will be applied for the transactions done from 1st , October 2020 onward towards Foreign tour or Foreign Remittance :
If you buy foreign tour package , the seller of the package will collect additional amount of 5 % along with the tour package cost as an Advance Income Tax ( TCS - Tax Collected at Source ) ) from you . If you remit more than Rs 7 lakhs under Liberalised Remittance Scheme of the Reserve Bank of India ( the scheme under which many parents remit funds to their children studying abroad ) , the Authorized Dealer through whom you remit will collect additional amount of 5 % for the amount in excess of Rs 7 lakhs along with the exchange cost as Income Tax . Further if you do not furnish PAN / Aadhaar number during the transaction , the percentage of such income tax collection will increase to 10 % instead of 5 % . But if you remit out of education loan taken for studies abroad , the authorised dealer will collect only 0.5 % in excess of seven lakh rupees remitted by you in a financial year .
The TCS collected by you is only advance income tax collected and you can adjust the collected amount at the time of submitting your IT Returns for the year FY 2020-21 . If you are not liable for any tax , you may claim refund while submitting IT returns . If one does not file IT Return , the amount collected under TCS will lie with the government .
The above rules are made following amendment made to Sec 206C of Income tax Act .
1. Simplified optional Individual tax regime is introduced with lower income tax rates for the persons who are ready to forgo many tax rebates .
a. REBATES TO BE FORGONE :
1. Standard Deduction of Rs 50,000 allowed for salaried persons / pensioners .
2. Cumulative deduction of Rs 1.5 lakhs allowed under Section 80C, 80CCC, and Section 80 CCD for savings/investments, premium for annuity / pension fund
3. Deductions allowed for Rs 50,000 / 1,50,000 under Section 80 EE / 80 EEA for the Interest on Housing loans with certain conditions
4. Deduction allowed under 80 E for interest on education loan taken for pursuing Higher Education .
5. Deductions allowed for Rs 2.00 lakhs under Section 24 for the Interest on Housing loans
6. Deductions allowed for Rs 1,50,000 under Section 80 EEB for the Interest on loans taken for purchase of electric vehicles .
7. Interest on savings bank accounts allowed up to Rs 10,000 under Section 80TTA and for senior citizens only if they have not claimed under section 80TTB
8. Interest received by a senior citizen on deposits with banks / co-operative societies / post office up to Rs 50,000 under section 80 TTB .
9. Deduction allowed for Health insurance Policies under 80 D up to Rs. 50,000/- for senior citizens and up to Rs. 25,000/- for others .
b. REBATES THAT CAN BE USED IN NEW TAX REGIME ALSO
1. CONVEYANCE ALLOWANCE , LFC , TRANSFER
Dated 29.06.2020 : Income Tax department has amended rules now and permitted conveyance allowance , travel allowance , LFC / LTC and transfer allowance etc to be to be under exemption category of newly 115BAC as per Gazette notification dated 26.06.2020 . Accordingly following allowances are also exempted under the new tax regime :
a) any allowance granted to meet the cost of travel on tour or on transfer;
(b) any allowance, whether, granted on tour or for the period of journey in connection with transfer, to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty;
(c) any allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit
To view Gazette Notification , CLICK HERE
C. TAX STRUCTURE UNDER NEW SIMPLIFIED TAX REGIME
a . No tax up to Rs 2,50,000
b. Income tax at 5 % from Rs 2,51,000 to Rs 5 .00 Lakhs
c. Income tax at 10 % from Rs 5,00,001 to Rs 7.5 Lakhs
d. Income tax at 15 % from Rs 7,50,001 to RS 10 .00 Lakhs
e. Income tax at 20 % from Rs 10,00,001 to Rs 12 .50 Lakhs
f. Income tax at 25 % from Rs 12,50,001 to Rs 15 .00 Lakhs
g. Income tax at 30 % above Rs 15 .00 Lakhs
2. EMPLOYEE / PENSIONER CAN OPT TCS / TDS EITHER FOR NEW REGIME OR OLD REGIME
An employee, having income other than the income under the head "profit and gains of business or profession" and intending to opt for the concessional rate under section 115 BAC of the Act, may intimate his employer, of such intention for each previous year and upon such intimation, the employer has to compute his total income, and make TDS thereon in accordance with the provisions of section 115 BAC of the Act.
2. If such intimation is not made by the employee, the employer shall make
TDS without considering the provision of section 115 BAC of the Act.
3. intimation so made by the employee will be only for the purposes of TDS during the previous year and cannot be modified during that year.
4. However, the intimation would not amount to exercising option in terms of sub-section (S) of section 115 BAC of the Act . Thus, option at the time of filing of return of income could be different from the intimation made by such employee to the employer for that previous year.
5. However if you have income under the head "profit and gains of business or profession" also, the option for taxation under section 115 BAC of the Act once exercised for a previous year at the time of filing of return of income under cannot be changed for subsequent previous years except in certain circumstances. To read Ministry of Finance circular dated 13.04.2020 in this regard , CLICK HERE
6. For those who opt to be in old tax regime , there is no change in Tax rates . It will continue as per slabs of FY 2019-20
7. Dividend Distribution Tax removed , but dividends to be added to individual incomes