What are the Personal Income Tax Changes Suggested in the Final Budget 2024?

Finance Minister Nirmala Sitharaman presented the Union Budget 2024 on July 23. She is the first Indian Finance Minister to present the Union Budget for seven consecutive years. In her speech, Sitharaman introduced several significant changes for the country's economic transformation and major relief for taxpayers.

These proposed changes highlight the government's commitment to fostering a more equitable and efficient tax system. Here are some significant personal income tax changes you must be aware of:

Revised income tax slabs

The Union Budget 2024 introduced a new structure for personal income tax slabs under the new regime:

These revised slabs aim to ease the tax burden on lower and middle-class taxpayers. With these changes, salaried employees opting for the new tax regime can save up to Rs. 17,000 in taxes.

Increased standard deduction

In her 2024 budget speech, FM Sitharaman proposed increasing the standard deduction from Rs. 50,000 to Rs. 75,000. This change will provide additional relief to taxpayers, lowering their overall tax liability and ensuring they have more disposable income.

Increased family pension deduction

FM Sitharaman has also proposed an increase in family pension deduction from Rs. 15,000 to Rs. 25,000. This deduction is specifically for family members receiving a pension due to the death of a government employee. The increase in the deduction limit will provide better financial support to families, reducing their tax burden.

Simplification of capital gains tax

The Final Budget 2024 has introduced key modifications to capital gains taxation:

- Tax on short-term capital gains (STCG), which applies to assets held for less than three years, has been increased from 15% to 20%. This change specifically affects gains from equity shares, equity mutual funds, and units of business trusts where Securities Transaction Tax (STT) is paid. Other types of short-term capital gains will be taxed at applicable rates.

- Long-term capital gains (LTCG) for all types of assets will be adjusted to 12.5%. Earlier, this rate was 10% for certain listed assets like equity shares and mutual funds and 20% with indexation for other assets. The exemption limit for LTCG has also been increased from Rs. 1 lakh to Rs. 1.25 lakhs in gains.

Let’s look at an example to understand how this will impact investors:

Suppose Avinash invested Rs. 10 lakhs in a mutual fund. After a year, his assumed return is 20%. Here’s how his tax will be calculated before and after the new budget:

This means after the Union Budget 2024, Avinash will save Rs. 625 in LTCG tax. However, since STCG tax is 20%, it’s best for Avinash to stay invested for the long term to enjoy the power of compounding and avail of tax benefits.

Increase in STT for futures and options

Following the Union Budget 2024, STT for futures has been increased from 0.0125% to 0.02% of the transaction value. For options contracts, the STT has been increased from 0.0625% to 0.1%. This means that trading in these financial instruments will now come with a higher tax cost, which could impact the overall trading expense and affect investment decisions.

NPS contribution by employers

FM Sitharaman proposed increasing the limit for employer contributions to the National Pension Scheme (NPS). Currently, employers (excluding government employers) can contribute up to 10% of an employee's salary to NPS. This limit is now proposed to be increased to 14%.

To wrap up

The Union Budget for 2024 introduced several key changes to personal income tax regulations. Modifications like revised income tax slabs, increased standard deductions, and adjustments to capital gains tax rates aim to simplify the tax structure and provide significant benefits to taxpayers. As these changes come into effect, it's essential to carefully review your financial strategy to maximise the benefits of these provisions.