Income Tax Changes in Budget 2024: Tax Gains and Gimmicks for the Enthusiastic Taxpayer

One of the key changes in Budget 2024 involves modifications to deductions and exemptions in income tax. Existing provisions, such as those under Section 80C (which offers deductions for investments in specified instruments) and Section 80D (which provides deductions for health insurance premiums), may have been adjusted. New exemptions could also be introduced. Taxpayers should review these changes carefully and adjust their financial planning to maximize available deductions and exemptions. This proactive approach ensures that they take full advantage of the tax-saving opportunities the new regulations present.

Here’s a detailed guide on the do’s and don’ts for individual taxpayers based on the new budget.

Dos

1.  Understand the New Tax Slabs

The 2024 budget has revised the income tax slabs, offering potential tax savings for various income brackets. The new tax slabs are designed to provide relief to middle-income earners.

• Income up to ₹2.5 lakh: Nil
• Income from ₹2.5 lakh to ₹5 lakh: 5%
• Income from ₹5 lakh to ₹10 lakh: 10%
• Income above ₹10 lakh: 20%

This change reduces the tax burden on middle-income groups, providing significant savings. For instance, incomes between ₹5 lakh and ₹10 lakh are now taxed at a reduced rate of 10%, providing significant savings for middle-income earners.

2. Utilize the Increased Standard Deduction

The standard deduction for salaried individuals has been increased from ₹50,000 to ₹60,000. This increase directly reduces the taxable income, resulting in lower tax outgo. To benefit from this change, ensure that your employer updates this deduction in your salary structure. This can save you an additional ₹10,000 on taxable income.

3. Leverage New Tax Exemptions

The budget has introduced higher exemption limits for various allowances:

• Medical Insurance Premiums: The exemption under Section 80D for medical insurance premiums has been increased from ₹25,000 to ₹30,000 for individuals below 60 years and from ₹50,000 to ₹60,000 for senior citizens.
• Transport Allowance: The exemption limit for transport allowance has been raised from ₹1,600 per month to ₹2,400 per month.

These changes provide more opportunities to reduce taxable income and should be fully utilized.

4. Maximize Section 80C Benefits

Section 80C continues to offer deductions up to ₹1.5 lakh for investments in eligible instruments such as Public Provident Fund (PPF), Employee Provident Fund (EPF), National Savings Certificate (NSC), and Equity-Linked Savings Scheme (ELSS). Plan your investments early in the financial year to take full advantage of this deduction, reducing your taxable income and increasing your savings.

5. Gold

Customs duties on gold and silver were decreased from 10% to 6% in the budget, making gold more affordable. This should not justify spending money on gold to purchase it cheaply. It is best to limit gold exposure in a portfolio to 5–10%, and holding more than that may be risky.

The ideal option to invest in gold for individuals who can hold the investment for 8 years is through sovereign gold bonds, which pay an annual interest rate of 2.5% over and above the value increase of gold and tax-free capital gains after the 8 years.

6. Impact of Capital Gains Tax Changes

The budget has made notable changes to the capital gains tax rules:

• Gains made after a year of investment are subject to long-term capital gains tax (LTCG), which has increased from 10 to 12.5%. The short-term capital gains tax (STCG) on stocks and equity-oriented mutual funds with more than 65% exposure to shares has been raised from 15% to 20%.
• Due to higher taxes, investors who previously parked short-term money in arbitrage funds would now be required to pay 20% of their profits in STCG tax, as opposed to 15% previously. Because the tax difference has shrunk, investors must now research the rate of FDs for the period in which they intend to invest and weigh the post-tax returns against arbitrage funds to select the more advantageous option.

Understanding the revisions in capital gains tax rules is essential, especially for those involved in real estate or equity investments. These changes can significantly impact your tax liability on investments, so it’s crucial to understand and incorporate them into your financial planning. Consult a financial advisor to optimize your investment strategy and minimize capital gains tax.

Don’ts

1. Ignoring the New Tax Regime Options

The budget provides an option between the old tax regime with deductions and the new simplified tax regime with lower rates but without deductions. Evaluate both options to determine which one benefits you more. For instance, taxpayers with fewer investments and deductions might find the new regime more advantageous. Use online tax calculators to compare the tax outgo under both regimes.

2. Overlooking Filing Deadlines

Timely filing of income tax returns is crucial to avoid penalties and interest. The budget has retained the filing deadline of July 31st for individual taxpayers. Missing this deadline can result in penalties up to ₹10,000 and additional interest on the due tax amount. Mark important dates on your calendar and set reminders to ensure compliance.

3. Neglecting Health Insurance

With the increased exemption for medical insurance premiums under Section 80D, ensure you have adequate health coverage. This not only provides financial security in case of medical emergencies but also offers significant tax benefits. Review your health insurance policies annually to ensure they meet your needs and maximize the tax benefits.

4. Misreporting Income or Deductions

Accurate reporting of all sources of income and claiming only legitimate deductions are essential. The budget has introduced stricter penalties for misreporting, with fines up to 200% of the under-reported tax amount. Maintain detailed records of all income and investments to ensure accurate reporting and avoid severe penalties.

5. Forgetting to Update Investment Declarations

Update your employer with your investment declarations to ensure the correct amount of Tax Deducted at Source (TDS) is deducted from your salary. This helps in accurate tax calculation and prevents underpayment or overpayment of taxes. Reviewing and updating your declarations periodically throughout the year ensures your tax liabilities are managed effectively.

Conclusion

The Union Budget 2024 is expected to make significant changes to Indian income tax legislation, which would have a wide-ranging impact on individual income taxpayers. Taxpayers may successfully handle these changes by being informed of the new income tax regulations, reviewing and utilizing deductions and exemptions, maintaining accurate records, and consulting a CPA. Another option to reduce the process is to use digital tools and submit returns on time. Individuals may manage their money more efficiently in an ever-changing tax landscape by avoiding common blunders that ensure compliance and maximize tax benefits.

For reference: livemint.com/budget/income-tax-changes-in-budget-2024-dos-and-don-ts-for-individual-taxpayers

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