Chartered Accountants React To Union Budget 2024: Praise For Standard Deduction Hike, Concerns Over Capital Gains Tax Reforms

Finance Minister Nirmala Sitharaman presented the Union Budget 2024-25 in the parliament yesterday. To aid the middle- and lower-income classes, the Finance Minister announced an increase in the standard deduction from Rs 50,000 to Rs 75,000, as well as minor tweaks to the tax slabs under the simplified New Tax Regime (NTR).

These proposals will provide individual taxpayers with a tax benefit of up to Rs 17,500 per year under the NTR. The old tax regime remains unchanged, implying that the government intends to encourage taxpayers to choose the NTR.

The budget proposes significant changes to the taxation of capital gains, including raising the short-term capital gain (STCG) tax from 15% to 20% and the long-term capital gain (LTCG) tax from 10% to 12.5% on transfers of equity shares and units of equity-oriented mutual funds. Although, a little relief has been provided by increasing the LTCG gain exemption from Rs 1,00,000/- to Rs 1,25,000/-.

Furthermore, short-term and long-term capital gains will be calculated using only two holding periods 12 months and 24 months. LTCG from the sale of the property was previously taxed at 20% with an indexation advantage. The new LTCG tax rate for property sales is 12.5%, with no indexation benefit.

Going forward, share buybacks will be considered as deemed dividends in the hands of the assessee, with no capital gain exemption. In the TDS rates, certain types of payments have been rationalised.

The direct tax proposals in the budget imply a move toward simplifying taxes, minimizing tax litigation, and raising revenue to support the government's development and welfare programs.