Everybody in the country waits for the Union Budget every year so that they can plan their finances and investments. This year, the day arrived on July 23, when Finance Minister Nirmala Sitharaman presented the budget. However, it was different in many ways.
First, the government had to reschedule the budget presentation from February to July because of the Lok Sabha elections that took place in April-May. This resulted in only the Interim Budget being released on the 1st of February 2024, while the final budget was proposed on the 23rd of July 2024. But that is not all.
With this context, the Union Budget 2024-25 pretty much assumes larger-than-life importance for the investor, more so for the one following the new tax regime. Be it changing tax slabs or changes in tax rates—the government has brought in a plethora of reforms that could make or break the investment planning of any investor.
But don’t worry—we’re here to help. In today’s blog, we shall cover the major changes in the new income tax regulations and how they may affect investment strategies. Let’s march in!
What Was the Agenda of Budget 2024-25?
The Ministry of Finance, Government of India, has cited the following as the radical agenda of Union Budget 2024-25:
- Productivity and resilience in agriculture: To ensure food security and livelihoods for those dependent on farming.
- Employment and skilling: To address challenges of unemployment and bring out economic growth.
- Inclusive human resource development and social justice: To make sure all social sections have an equal opportunity for their development and provide support to the most marginalized.
- Infrastructure: To ensure economic growth, connectivities, and improvement in the quality of life throughout the country.
- Manufacturing & services: For job creation and export growth for a balanced economy.
- Urban development: For managing rapid urbanization, improving living conditions, and promoting sustainable cities.
- Innovation, research, and development: For maintaining global competitiveness and meeting future challenges with increased superior technologies.
- Energy security: To condition economic activity, reduce dependence on imports, promoting cleaner, sustainable energy practices.
- Next generation reforms: To modernize governance and increase the ‘Ease of Doing Business’ for long-term economic stability.
What Are the New Income Tax Slabs under the New Tax Regime?
About 525 lakh taxpayers chose the new tax regime in the AY 2023-24. However, with an aspiration to attract more, the Finance Minister of India revised the slabs in the current year’s budget.
Given below are the modifications:
| Old Tax Slab (FY 2023-34) | Tax Rate | New Tax Slab (FY 2024-25) | Tax Rate |
|---|---|---|---|
|
Upto ₹3 lakh |
Nil |
Upto ₹3 lakh |
NA |
|
₹3 lakh - ₹6 lakh |
5% |
₹3 lakh - ₹7 lakh |
5% |
|
₹6 lakh - ₹9 lakh |
10% |
₹7 lakh - ₹10 lakh |
10% |
|
₹9 lakh - ₹12 lakh |
15% |
₹10 lakh - ₹12 lakh |
15% |
|
₹12 lakh - ₹15 lakh |
20% |
₹12 lakh - ₹15 lakh |
20% |
|
Above ₹15 lakh |
30% |
Above ₹15 lakh |
30% |
Apart from this, there’s also a change in Standard Deduction—its amount has been raised to ₹75,000 up from ₹50,000. Due to these changes, it is believed that under this regime, the taxpayers can save about ₹ 17,500 in taxes.
4 New Changes in Income Tax Regime: How Can They Impact Investment Planning
Here are some new income tax provisions in the Budget 2024 that would most likely affect one’s investments and returns.
1. Capital Gains
STCG will develop a 20% levy as opposed to the statutorily existing 15%, whereas the LTCG will be taxable at 12.5% against the statute rate of 10%; in the same breath, its tax exemption limit has also been increased from ₹1 lakh to ₹1.25 lakhs.
While this could be good for retail investors, it can act as a deterrent to large investors with long-term goals, as the higher tax rates can considerably bring down their long-term investment returns.
2. Futures & Options Trading
Another major highlight of Budget 2024-25 is the modification related to STT or the Securities Transaction Tax.
The Finance Ministry has proposed increasing the STT on Futures and Options trading from the existing levels to 0.02% and 0.1%, respectively. This has attracted some controversy among the investor community. As a higher STT implies increased trading costs and lower returns, it is par for the course. Given the elevated risk that is integral to Futures and Options trading, this provision can choke off the investor’s profits to a large extent, more so in the near term.
3. Real Estate Investment
Earlier, if any person sold a real estate property after holding it for 2 years, then it would also be treated as LTCG. For such capital gains on real estate, the previous taxation norm was simple—the government would charge them a 20% tax on profit with indexation benefits.
However, the budget this year has proposed to withdraw the indexation benefit on LTCG taxation pertaining to real estate. In easy words, anyone making a long-term capital gain by selling a real estate property will be taxed 12.5% on their profit without any indexation or adjustment for inflation.
This can be ideal for investors with a short-term horizon. However, selling the property after a long period could, with the rising inflation, erode a person’s profits since they cannot adjust the selling price for inflation against the original cost.
4. Gold Investment
This year, the government budgeted to reduce customs duty on gold and silver from 15% to 6%. Therefore, for an investor who wanted to invest in either of these two instruments, it would form one of the most opportunistic scenarios for investment.
Wrapping Up
Ever since the 2024-25 budget came in, one of the interesting debates that has been going on in various chat space is regarding the advantages or impact. Some believe persisting with the old tax regime is more profitable for investors, while others spotted the new tax reforms to be the golden opportunity to build a fortune with proper planning.
Remember, these are subjective to one’s investment goals and requirements. So, take some time before deciding on any of the tax regimes based on the pros and cons.
Some Common FAQs:
As per the government, the theme this year is employment, skill, MSME, and middle class.
The basic focus is on the following four target demographic groups: poor, women, youth, and farmers.
Yes, the amount of standard deduction has been increased to ₹75,000 in the new tax regime under Budget 2024.