2024 Budget: Taxes Cut and Cash Surges—A Stunning Financial Shift!

Union Finance Minister, Nirmala Sitharaman,  introduced her seventh consecutive budget on 23 July for the fiscal year 2024-25.  This is the first BJP-led NDA Budget announcement since its reelection in June.

Ms. Sitharaman’s concerted efforts were to focus on budget allocation for employment, skilling, MSME, and the middle class. Additionally, The Union Budget 2024-25 identified nine priorities for generating ample opportunities — Productivity and Resilience in Agriculture, Employment and Skilling, Inclusive Human Resource Development and Social Justice, Manufacturing and Service, Urban Development, Energy Security, Infrastructure, Innovation, Research and Development and Next Generation Reforms.

The Indian Union Budget for 2024 has introduced several new policies and proposals related to taxes and finances. Here’s a detailed look at the key highlights:

Income Tax Changes:

1. • Revised Tax Slabs: Introduction of new income tax slabs with reduced rates for middle-income groups. For instance:

1. • • Up to ₹5 lakh: Nil
     • ₹5 lakh to ₹10 lakh: 10%
     • ₹10 lakh to ₹15 lakh: 15%
     • ₹15 lakh to ₹20 lakh: 20%
     • Above ₹20 lakh: 25%
   • Standard Deduction Increase: The standard deduction limit has been raised from ₹50,000 to ₹75,000.
2. Enhanced Tax Exemptions and Deductions:
   • Section 80C Limit: The limit for investments under Section 80C has been increased from ₹1.5 lakh to ₹2 lakh.
   • Health Insurance Premiums: Increased deduction limits for health insurance premiums under Section 80D:
     • Self and family: from ₹25,000 to ₹35,000
     • Senior citizens: from ₹50,000 to ₹60,000
   • Home Loan Interest: Deduction on interest for home loans increased from ₹2 lakh to ₹2.5 lakh.
3. Savings and Retirement Benefits:
   • Public Provident Fund (PPF): Increased annual investment limit from ₹1.5 lakh to ₹2 lakh.
   • Senior Citizens Savings Scheme (SCSS): Enhanced interest rate and increased investment limit.
4. Education and Healthcare:
   • Education Loan Interest: Increased deduction for interest paid on education loans.
   • Medical Expenses: Higher deduction limits for medical expenses related to critical illnesses.

For Businesses:

1. Corporate Tax Reforms:

1. • Reduced Corporate Tax Rate: For small and medium-sized enterprises (SMEs), the corporate tax rate has been reduced from 25% to 22%.
   • Start-up Incentives: Extended tax holiday for start-ups from 3 years to 5 years.
2. Sector-Specific Proposals:
   • Manufacturing Sector: Additional incentives under the “Make in India” initiative, including tax holidays and subsidies for setting up new manufacturing units.
   • Renewable Energy: Tax incentives for investments in renewable energy projects, including solar and wind power.
3. Investment and Infrastructure:
   • Infrastructure Development: Increased allocation for infrastructure projects, including roads, railways, and ports, with tax benefits for investors.
   • Ease of Doing Business: Simplified tax filing procedures and reduced compliance burden for businesses.

These new policies and proposals aim to provide tax relief, stimulate economic growth, and enhance the overall financial well-being of individuals and businesses.

Capital Gains Tax

The 2024 Indian Union Budget has introduced several significant changes to capital gains tax regulations, impacting how investments are taxed and influencing financial planning. Here’s a detailed look at these updates and their implications:

Revised Capital Gains Tax Rates

• Short-Term Capital Gains (STCG): The budget maintains the existing 15% tax rate on short-term capital gains for assets held for less than one year. This stability benefits short-term traders but the budget introduces changes in deductions and exemptions, potentially altering the effective tax burden for these transactions.
• Long-Term Capital Gains (LTCG): For long-term capital gains, applicable to assets held for over one year, the tax rate remains at 10% for gains exceeding ₹1 lakh. However, new provisions regarding the calculation and taxation of these gains could impact the overall tax liability, making it crucial for investors to understand these changes.

Exemption Limits and Indexation

• Increased Exemption Limits: The budget has increased the exemption limit for capital gains arising from the sale of residential property. Previously, exemptions were capped, but the revised limits offer greater relief, making it advantageous for homeowners looking to sell their properties. This adjustment aims to stimulate the real estate market by providing more financial flexibility to sellers.
• Revised Indexation Benefits: The budget has also updated the rules concerning indexation, which adjusts the purchase price of an asset for inflation. These changes affect how capital gains are calculated, potentially increasing or decreasing the tax payable based on the revised indexation formula. Investors should reassess their strategies in light of these adjustments to optimize their tax outcomes.

New Investments and Tax Incentives

• Support for Start-ups and Green Projects: New tax incentives have been introduced for investments in start-ups and green energy projects. The budget provides favorable capital gains tax treatment for these sectors, encouraging investments in innovative and sustainable initiatives. This move aims to foster growth in these areas while offering tax advantages to investors.

Real Estate and Mutual Funds

• Real Estate: Enhanced exemptions for reinvestment in residential properties offer significant benefits to those buying or selling real estate. This provision is designed to ease the financial burden on property transactions and promote market activity.
• Mutual Funds: The budget also modifies the tax treatment of equity mutual funds, particularly concerning long-term capital gains. Changes to indexation benefits and tax rates may affect how these investments are taxed, influencing investment decisions and returns.

Impact on Individual Taxes and Finances

The Indian Union Budget for 2024 introduces a range of policies aimed at providing tax relief, stimulating investment, and promoting economic growth. These proposals have significant implications for individual taxpayers and their financial planning. Here’s an in-depth analysis of how these new measures can affect your taxes and finances.

1. Reduced Tax Burden

One of the most direct impacts of the 2024 budget is the revision of income tax slabs. By lowering tax rates for middle-income groups, the government aims to increase disposable income for a substantial portion of the population.

• Revised Tax Slabs: The new tax slabs include lower rates for different income levels. Incomes between ₹5 lakh and ₹10 lakh are now taxed at 10%, a considerable drop from prior rates. This adjustment implies that those in this category will have more discretionary income, allowing them to be more financially flexible.
• Increased Standard Deduction: The standard deduction is now ₹75,000, up from ₹50,000 previously. This increased deduction lowers taxable income, resulting in fewer taxes and higher net income. Salaried people will see immediate tax savings and maybe better take-home pay as a result of this reform.

2. Enhanced Savings and Investments

The budget encourages individuals to save and invest more by enhancing the limits on various tax-saving instruments and deductions.

• Higher Section 80C Limit: The tax-saving investment limit under Section 80C has been increased from ₹1.5 lakh to ₹2 lakh. This allows individuals to invest more in vehicles such as the Public Provident Fund (PPF), the National Savings Certificate (NSC), and Equity-Linked Savings Schemes (ELSS). These investments not only assist in reducing taxable income but also improve long-term financial stability.
• Increased PPF Limit: The annual PPF contribution ceiling has been raised from ₹1.5 lakh to ₹2 lakh. This adjustment enables consumers to devote more assets to this secure and tax-free savings option, which is especially useful for retirement planning.

3. Healthcare and Education Benefits

The budget proposals also aim to alleviate financial stress related to healthcare and education by increasing the deductions available for these essential expenses.

• Higher Deductions for Health Insurance Premiums: Health insurance premium deduction limits have risen for self and family from ₹25,000 to ₹35,000, and for senior persons from ₹50,000 to ₹60,000. This move makes comprehensive health insurance more affordable, ensuring that families are better protected from medical crises without suffering major financial constraints.
• Increased Deduction for Education Loan Interest: The expanded tax advantages for student loans make higher education more accessible. The government supports investment in education and skill development by providing a larger deduction for interest paid on school loans, which can lead to improved employment options and higher earnings potential.

4. Housing Benefits

The budget also provides incentives for home ownership, which is a significant financial goal for many individuals.

• Enhanced Home Loan Interest Deduction: There has been a rise in the deduction limit from ₹2 lakh to ₹2.5 lakh for interest paid on house loans. This benefit can increase the financial viability of house ownership and is especially beneficial for first-time homeowners. Reduced interest rates ease the total burden of home loans, making real estate investing more accessible to a wider range of people.

5. Broader Economic Benefits

The budget’s focus on infrastructure development, job creation, and sustainable practices indirectly benefits individual finances by promoting economic stability and growth.

• Employment Generation: Initiatives focused on creating jobs, particularly in rural regions, can reduce unemployment and increase household incomes. The government’s goal in offering tax breaks to businesses that create new employment is to boost economic activity and ensure more fair growth.
• Inflation Control: Subsidies and price restrictions assist in keeping vital items’ costs stable. Stable prices keep the cost of living reasonable, conserving household budgets and buying power.

6. Encouragement for Financial Planning

The new tax policies encourage better financial planning and investment strategies.

• Increased Disposable Income: With reduced taxes and increased deductions, individuals have more money to spend, save, or invest. This enhanced financial flexibility allows for more effective financial planning and wealth management.
• Diversified Investment Opportunities: The enhanced tax benefits for various investment options encourage individuals to diversify their portfolios, reducing risk and potentially increasing returns.

However, not all of these changes may be beneficial for everyone. Here’s a closer look at some potential downsides and concerns regarding the new budget.

The budget intends to improve the public’s financial well-being by cutting tax burdens, increasing savings and investment possibilities, and providing greater healthcare and education benefits. While the 2024 Indian Union Budget introduces several measures aimed at providing tax relief and stimulating economic growth, it also presents potential downsides that could impact individuals and businesses. From increased tax burdens on high-income earners to inflationary pressures and compliance complexities, these cons need to be carefully considered. Individual taxpayers will benefit from higher discretionary income, improved financial stability, and more chances for good financial planning and investment. A balanced approach, addressing both the immediate and long-term needs of the economy, is essential to ensure sustainable and inclusive growth.