Budget 2024: Anticipated Tax Relief and the 8th Pay Commission

Budget 2024

Budget 2024: Anticipated Tax Relief and the 8th Pay Commission

Budget 2024

Finance Minister Nirmala Sitharaman is set to unveil the full Union Budget for the fiscal year 2024-25 in the latter half of July. This presentation follows the Interim Budget she delivered in February, just before the Lok Sabha elections. With the new government now in place, stakeholders from various sectors are keenly awaiting the detailed budget for FY 2024-25.

Anticipations from Salaried Taxpayers

Salaried taxpayers, who contribute significantly to income tax revenues, are hopeful for positive changes from FM Sitharaman. Their primary expectations include:

1. Reduction in Income Tax Rates

There is a strong anticipation for a reduction in income tax rates to boost disposable income and stimulate spending. Currently, income tax rates range from 5% for income above ₹2.5 lakh annually to 30% for income exceeding ₹15 lakh per year. Since the Interim Budget did not change these rates, taxpayers are hopeful for revisions in the Full Budget for FY 2024-25, which could enhance economic activity and increase GST collections.

2. Formation of the 8th Pay Commission

Government employees are looking forward to the establishment of the 8th Pay Commission to address the rising cost of living. Traditionally, pay commissions are set up every 10 years to review and recommend salary revisions for government employees. The last commission was established in 2014, with its recommendations implemented on January 1, 2016.

3. Increase in 80C Exemption Limits

Taxpayers are advocating for an increase in the tax exemption limit under Section 80C of the Income Tax Act, 1961. The current limit stands at ₹1.5 lakh per annum, and there is a call to raise this limit to at least ₹2 lakh annually. Additionally, taxpayers seek a broader range of eligible investment options under this section.

As the budget announcement nears, the hopes and expectations of salaried taxpayers and government employees are high, with many looking forward to potential tax relief and salary revisions.

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Budget 2024: Anticipated Tax Reforms to Spur Economic Growth

Budget 2024

Budget 2024: Anticipated Tax Reforms to Spur Economic Growth

Budget 2024

With the July budget announcement drawing near, the government is expected to unveil significant changes to the current income tax system, particularly benefiting lower income groups. These reforms aim to boost consumption and economic activity, representing a strategic shift from welfare spending to tax relief for citizens.

Proposed Tax Reductions to Increase Disposable Income

Insiders reveal that the proposed tax cuts are designed to enhance disposable income for low earners, thereby driving greater economic activity and consumption. An official commented, “Rationalizing tax slabs will lead to greater disposable income, which translates to greater consumption, greater economic activities, and more GST collection.”

Mitigating Steep Marginal Tax Rates

Currently, the tax rate starts at 5% for incomes beginning at Rs 3 lakh and rises sharply to 30% for incomes at Rs 15 lakh. This steep increase is viewed as excessive, placing a significant burden on taxpayers. Rationalizing these rates could ease this burden and boost economic activity.

Stimulating the Economy Through Tax Reforms

These tax cuts are expected to significantly enhance consumption, a critical factor for reviving demand and reigniting the investment cycle, particularly in consumer-driven sectors. This initiative could also increase GST collections, offering further fiscal advantages.

Budget 2024

Budget Planning and Economic Strategy

As the fiscal year 2024-25 budget approaches, Finance Minister Nirmala Sitharaman is set to commence pre-budget discussions with industry groups around June 20, following a meeting with Revenue Secretary Sanjay Malhotra. The forthcoming budget will outline the economic strategy of the Modi 3.0 government, focusing on stimulating growth without fueling inflation, while ensuring resources for coalition commitments. The ultimate goal is to position India as a USD 5-trillion economy and evolve into a ‘Developed India’ by 2047.

Economic Forecast and Key Priorities

The Reserve Bank of India (RBI) projects a 7.2 percent growth for the Indian economy this fiscal year, driven by improving rural demand and easing inflation. Prime Minister Modi’s third term priorities include addressing agricultural challenges, job creation, sustaining capital expenditure, and enhancing revenue growth to uphold fiscal consolidation.

Despite robust tax revenues, non-tax revenue remains a challenge due to limited progress in strategic disinvestment, with the sale of Air India being a notable exception. Nonetheless, the economic policies of the past decade have been positively received, with rating agency S&P upgrading India’s sovereign rating outlook to positive, and a potential further upgrade in the next 1-2 years depending on meeting fiscal deficit targets.

As the government considers these tax reforms, the potential benefits for low-income earners and the broader economy are substantial. By rationalizing the tax structure, the government aims to increase disposable income, boost consumption, and stimulate economic activity, setting the stage for sustained economic growth and development. This strategy not only supports individual financial well-being but also strengthens the national economy, positioning India for a prosperous future.

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3 Key Income Tax Modifications Introduced in the Interim Budget of 2024.

Interim Budget

3 Key Income Tax Modifications Introduced in the Interim Budget of 2024

Additionally, it was stated in the budget speech that there are no planned rate adjustments for direct taxes.

The interim budget has implemented the following adjustments on income tax.

Interim Budget

Partial Withdrawal of Outstanding Direct Tax Demands: Limits for FY 2009-10 and FY 2010-11 to 2014-15

Due to the online ITR processing, CPC Banglore has been posting previous demands on taxpayers’ Income Tax Portals. It was discovered that these demands were incorrect on several occasions. The government failed to speed the process to withdraw the demand, which led to the taxpayers site displaying tax and interest on these demands. If the taxpayer was entitled to a refund, these requests prevented the refund from being processed, and in certain situations, the refund was changed to reflect these demands. The government’s decision to remove these requests is a positive one. According to the budget address, around one crore tax payers should profit from this.

Extension of Tax Incentives originally expiring on 31-3-2024 to 31-3-2025

a) Section 80IAC allowed eligible start-ups incorporated between April 1, 2016, and March 31, 2024, to claim a 100% deduction on profits and gains from their business for three consecutive assessment years.

b) Section 10(4D) pertained to specified income, derived from the transfer of capital assets, by specified Alternative Investment Funds (AIFs) located in any International Financial Services Centre (IFSC) or the investment division of offshore banking units. This provision applied if the fund commenced operations on or before March 31, 2024.

Interim Budget

c) Section 10(4F) provided an exemption for non-resident income, such as royalty or interest from leasing aircraft or ships, paid by a unit of an IFSC. This exemption applied if the IFSC commenced its operations on or before March 31, 2024.

d) Section 10(23FE) granted an exemption for the income of a specified person in the form of dividends, interest, or specified sums received by a unit holder from a business trust. This exemption applied to long-term capital gains arising from investments made in India, whether in the form of debt, share capital, or units. The investment must be made on or after April 1, 2020, but on or before March 31, 2024, subject to certain conditions.

e) Section 80LA provided a deduction under section 80LA(1A) for any income generated by an International Financial Services Centre (IFSC) unit through the leasing activities of aircraft or ships. This deduction was applicable if the IFSC commenced its operations on or before March 31, 2024.

f) Sections 92CA, 144C, 253, and 255 empowered the government to issue directions until March 31, 2024.

Note: It’s crucial to highlight that there is no extension of the time limit specified in Section 115BAB and Section 115BAE. Section 115BAB offers a concessional tax rate (15%) for income earned by new manufacturing domestic companies, and Section 115BAE provides a similar concessional tax rate (15%) for new manufacturing co-operative societies. Both provisions apply if manufacturing commences by March 31, 2024.

Amendments to Section 206C

The Finance Act of 2023 implemented a retrospective increase in the Tax Collected at Source (TCS) rate for the Liberalised Remittance Scheme (LRS) and overseas tour packages. The rate was elevated from 5% to 20%, with effect from July 1, 2023, and officially enforced from October 1, 2023.

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