We are back with our analysis on the Full Budget 2024! Unlike 2019 (last time when we had Interim and Full budgets), this time, there are quite a few announcements in the budget and hence, we are separating this from our highlights on Interim Budget 2024. You can refer to the blog post here.
As always, this budget too has a usual feel - like we usually write - “Not much in it as a taxpayer, but lots of structural changes”, but the type of announcements are quite different. We will try to pick a few of those, which we thought, could be noteworthy. For anyone interested, we will share the relevant links as a footnote to this article. We will summarize our view at the end. And we will also look to cover the tax changes, with some numeric examples - to simplify it for our readers.
Key Highlights:
Employment
This is one of the biggest themes of this year's budget. Some of the main ones are listed below
First Timers : One-month wage to all persons newly entering the workforce in all formal sectors. This will be a direct transfer of 1 month salary in 3 installments to first-time employees. ‘First timer’ identification will be done by the relevant tagging in the EPFO data.
Eligibility: This will be applicable for first timers earning up to INR 1 lakh pm. However, the 1 month salary amount is capped to INR 15,000.
Additional notes: Some clarifications known from the press conference with the Finance Ministry later on, on budget day - First installment will be paid after month 1. Second installment will be paid in month 2, after completing a financial literacy course.
- Further, if the employee loses the job within 12 months from joining, then this payout will be recovered from the employer.
For first time employees in manufacturing, there will be additional incentives to both - employee and employer in the first 4 years of employment. (Significant details provided on this, in the Annexure to the Budget speech - link shared in footnotes)
For employers to such first timer employees (earning up to INR 1 lakh pm), in other sectors, the Employer’s Contribution to PF will be reimbursed by the government up to INR 3,000 per month, for 2 years.
Internship programme launched, to provide opportunities in 500 top companies to 1 crore youth in 5 years - to gain exposure for 12 months to real-life business environment, varied professions and employment opportunities. An internship allowance of INR 5,000 per month along with a one-time assistance of INR 6,000 will be provided. Companies will be expected to bear the training cost and 10% of the internship cost from their CSR funds.
NPS-Vatsalya has been launched, for minors, which can be converted into regular NPS accounts upon attaining age of maturity. Note: Though, there are no related deductions as such.
To facilitate higher participation of women in the workforce, working women hostels in collaboration with industry, will be set up, along with establishing creches.
Focus on upskilling of youth via a centrally sponsored scheme (our take, this might be via existing govt initiatives like Future Skills Prime, amongst others).
The much talked about Old vs New Pension scheme will be jointly reviewed in a manner that addresses the key concerns of common citizens and also maintains fiscal prudence.
Digital & Physical public infra
Physical infra budget announced during the interim budget stays as is, at 11.11 lakh crore (3.4% of GDP). Note: There are elaborate announcements towards various physical infra, which we are not covering here.
Investment in infrastructure by the private sector will be promoted through viability gap funding and enabling policies and regulations. A market based financing framework will be brought out.
Facilitation of Digital Public Infrastructure in Agriculture for coverage of farmers and their lands in 3 years.
This year, a digital crop survey for Kharif using the DPI will be taken up in 400 districts. The details of 6 crore farmers and their lands will be brought into the farmer and land registries.
Development of DPI applications at population scale for productivity gains, business opportunities, and innovation by the private sector. These are planned in the areas of credit, e-commerce, education, health, law and justice, logistics, MSME, services delivery, and urban governance.
Green & other forward looking initiatives
Operationalising the scheme announced for Innovation, Research & Development, during Interim Budget, or INR 1 lakh crore (Anusandhan National Research Fund).
INR 1,000 crore of VC fund to be set up for expanding the Space economy by 5 times in next 10 years.
Continued push on the PM Surya Ghar Yojana for Rooftop Solar Power setups.
Research and development of small and modular nuclear reactors - as announced during the interim budget.
A roadmap for moving the ‘hard to abate’ industries from ‘energy efficiency’ targets to ‘emission targets’ will be formulated.
Developing a taxonomy for climate finance for enhancing the availability of capital for climate adaptation and mitigation. This will support achievement of the country’s climate commitments and green transition.
Economic performance
From the interim budget (covered during press conference) - Capital expenditure on Railways is 2.55 lakh crores and that on Defence is 6.2 lakh crores.
Fiscal deficit target for FY 2024-25 is set at 4.9% of the GDP. This is beating their own estimate given during the Interim Budget, of 5.1% of GDP.
The goal to bring the Fiscal deficit below 4.5% of GDP, by FY 2025-26 stays as is.
From FY 2026-27 aim is to keep the fiscal deficit each year such that the Central Government debt will be on a declining path as percentage of GDP.
Additional Note: As we understand from the press conference, the idea here is to not stick to the Fiscal Deficit target of 3% of GDP - as these may be viable for economies with lower growth rates. For economies like India, with higher growth rates, the Govt debt may have to be higher than 3% - which will be assessed on an ongoing basis.
Indirect tax changes
Three more medicines necessary for cancer treatment, are being fully exempted from custom duties (from current 10%).
The Basic Customs Duty on mobile phone, mobile PCBA and mobile charger is being reduced to 15% (from current 20%) - this effectively means that imported mobile phones will also be cheaper.
Customs duty on Gold & Silver is reduced to 6% (from current 15%) and 6.4% (from current 15.4%) for Platinum.
Direct tax changes
Comprehensive review of the Income Tax Act, 1961 is being done, to make it simpler. Note: This is something that has been discussed since past few years, however, there are no set timelines yet.
Simplification of tax regimes for Charities - by merging 2 regimes into 1.
TDS rate on multiple payments is reduced from 5% to 2%, amongst other rate rationalizations. Some examples being Commission / Brokerage, Insurance payouts, rent payments etc.
Credit of Tax Collection at source (TCS), will be allowed against the TDS liability on Salary income.
Simplification of Reassessment
An assessment will be reopened beyond 3 years from the end of the assessment year only if the escaped income is INR 50 lakh or more. Further, this too, can be done only up to up to a maximum period of 5 years from the end of the assessment year.
For search cases, the maximum time limit is proposed to be reduced from 10 years to 6 years.
Angel tax is now abolished, which used to cause a lot of litigation with respect to funding of startups.
Corporate tax rate on foreign companies is reduced from 40% to 35%. This will reduce the disparity between Domestic companies and Foreign companies.
Security Transactions Tax (STT) on futures and options of securities is proposed to be increased to 0.02% (from 0.0125%) and 0.1% (from 0.0625%) respectively.
Income received on buy back of shares in the hands of the recipient. Note: In other words, full buyback consideration will be treated as dividend in the hands of the recipient. The cost of acquisition of the tendered shares will be allowed to be offset from other capital gains in the future. Effectively speaking, this may not remain as attractive as before.
NPS Employer Contribution deduction is increased from 10% to 14% of Basic salary for all employee categories. This is allowed in the new tax regime only. This change will be applicable from 1 April 2025.
Currently, non-reporting of small foreign assets has penal consequences under the Black Money Act. This includes the likes of ESOPs / RSUs investments in social security schemes and other movable assets abroad. Such non-reporting of movable assets up to INR 20 lakh is de-penalized.
Capital Gains changes -
Rates and holding period:
Equity Shares (listed) / Equity MFs
- Holding period stays as is - Long term on holding for more than 12 months.
- Long term: 12.5% (up from 10%); Short term: 20% (up from 15%)
- Exemption limit of capital gains on increased to INR 1.25 lakh per year (from INR 1 lakh).
All other Assets
- To be considered as Long Term, holding period for listed bonds and debentures is more than 12 months. For all other assets, it is more than 24 months.
- Long term: 12.5% (down from 20%, though, without indexation now**); Short term: As per slab (stays as is).
- Unlisted bonds, debentures, etc will be taxed at slab rates, irrespective of holding period.
** As per the Amendments proposed in the Finance Bill on 6 August 2024, taxpayers (Resident Individuals and HUF) will effectively have the option to choose between 12.5% without indexationOR20% with indexation - whichever is beneficial. Though there are certain conditions to be fulfilled, if someone wants to make investments under sections 54 (and other such sections), to nullify the gain.
Example: (we are taking house property, as that is perceived to have most impact)
| Scenario | Alt 1 - Holding Period 5 Years | Alt 2 - Higher Sell Amount
| |
| Absolute Gain | 3,055,230.00 | 3,055,230.00 | 7,344,230.00 |
| Holding period (Years) | 12 | 5 | 12 |
| CAGR | 2.47% | 18.82% | 2.73% |
| Existing Rate | New Rate | Existing Rate | New Rate | Existing Rate | New Rate | |
| Full Value of Consideration | 6,000,000.00 | 6,000,000.00 | 6,000,000.00 | 6,000,000.00 | 10,289,000.00 | 10,289,000.00 |
| Expenses incurred for transfer | 345,000.00 | 345,000.00 | 345,000.00 | 345,000.00 | 345,000.00 | 345,000.00 |
| Cost of acquisition*^ | 5,569,456.30^ | 2,944,770.00* | 3,659,928.43^ | 2,944,770.00* | 5,569,456.30^ | 2,944,770.00* |
| Long Term Gain/Loss | 85,543.70 | 2,710,230.00 | 1,995,071.57 | 2,710,230.00 | 4,374,543.70 | 6,999,230.00 |
| Tax on above | 17,108.74 | 338,778.75 | 399,014.31 | 338,778.75 | 874,908.74 | 874,903.75 |
^*Indexed Cost of Acquisition Calculation
| Holding Period 1 - 12 Years | Holding Period 2 - 5 Years | |
| Purchase Consideration | 2,859,000.00 | 2,859,000.00 |
| Stamp duty | 57,180.00 | 57,180.00 |
| Registration | 28,590.00 | 28,590.00 |
| Cost of acquisition* | 2,944,770.00* | 2,944,770.00* |
| CII for 2011-12 / 2018-19 | 184.00 | 280.00 |
| CII for 2023-24 | 348.00 | 348.00 |
| Indexed cost of acquisition^ | 5,569,456.30^ | 3,659,928.43^ |
As we see from this example, house property with lower appreciation, across longer holding periods, tends to lose out, as the tax under new, rationalized rates will be higher in those cases. As per the recent amendment, in such cases, taxpayers can opt for the 20% rate of tax, with indexation.
Slab changes -
We are showing the slabs as is first, followed by a comparative slabs across Old regime, Existing new regime and Currently revised ones, followed by a numeric example.
Slabs -
| Taxable Income | Rate |
| Upto 3,00,000 | Exempt |
| 3,00,001 - 7,00,000 | 5% |
| 7,00,001 - 10,00,000 | 10% |
| 10,00,001 - 12,00,000 | 15% |
| 12,00,001 - 15,00,000 | 20% |
| Above 15 Lakh | 30% |
Comparative slabs:
| Taxable Income | Old regime Tax Rates | New Regime - Existing Tax Rates | New Regime - New Tax Rates |
| Upto 2,50,000 | Exempt | Exempt | Exempt |
| 2,50,001 - 3,00,000 | 5% | Exempt | Exempt |
| 3,00,001 - 5,00,000 | 5% | 5% | 5% |
| 5,00,001 - 6,00,000 | 20% | 5% | 5% |
| 6,00,001 - 7,00,000 | 20% | 10% | 5% |
| 7,00,001 - 7,50,000 | 20% | 10% | 10% |
| 7,50,001 - 9,00,000 | 20% | 10% | 10% |
| 9,00,001 - 10,00,000 | 20% | 15% | 10% |
| 10,00,001 - 12,00,000 | 30% | 15% | 15% |
| 12,00,001 - 12,50,000 | 30% | 20% | 20% |
| 12,50,001 - 15,00,000 | 30% | 20% | 20% |
| Above 15 Lakh | 30% | 30% | 30% |
Numeric example:
| Particulars | Old tax regime | New regime - existing | New regime - new proposed |
| Income From Salary | 2,500,000.00 | 2,500,000.00 | 2,500,000.00 |
| Basic | 1,500,000.00 | 1,500,000.00 | 1,500,000.00 |
| Others | 1,000,000.00 | 1,000,000.00 | 1,000,000.00 |
| Exempt Incomes | |||
| NPS Employer Contribution | 10% | 10% | 14% |
| NPS Employer Contribution | 150,000.00 | 150,000.00 | 210,000.00 |
| Petrol allowance | 21,600.00 | 0.00 | 0.00 |
| Food Coupons | 0.00 | 0.00 | 0.00 |
| Telephone | 0.00 | 0.00 | 0.00 |
| LTA | 100,000.00 | 0.00 | 0.00 |
| Standard Deduction | 50,000.00 | 50,000.00 | 75,000.00 |
| Net taxable income | 2,178,400.00 | 2,300,000.00 | 2,215,000.00 |
| Income from House Property | -200,000.00 | 0.00 | 0.00 |
| Total Income | 1,978,400.00 | 2,300,000.00 | 2,215,000.00 |
| Deductions: | |||
| 80C | -150,000.00 | 0.00 | 0.00 |
| 80D | 0.00 | 0.00 | 0.00 |
| 80CCD(1B) | -50,000.00 | 0.00 | 0.00 |
| Gross Total Income | 1,778,400.00 | 2,300,000.00 | 2,215,000.00 |
| Tax on total income: | |||
| Upto 2,50,000 | 0.00 | 0.00 | 0.00 |
| 2,50,001 - 3,00,000 | 2,500.00 | 0.00 | 0.00 |
| 3,00,001 - 5,00,000 | 10,000.00 | 10,000.00 | 10,000.00 |
| 6,00,001 - 7,00,000 | 20,000.00 | 5,000.00 | 5,000.00 |
| 7,00,001 - 7,50,000 | 20,000.00 | 10,000.00 | 5,000.00 |
| 6,00,001 - 7,50,000 | 30,000.00 | 15,000.00 | 15,000.00 |
| 7,50,001 - 9,00,000 | 30,000.00 | 15,000.00 | 15,000.00 |
| 9,00,001 - 10,00,000 | 20,000.00 | 15,000.00 | 10,000.00 |
| 10,00,001 - 12,00,000 | 60,000.00 | 30,000.00 | 30,000.00 |
| 12,00,001 - 12,50,000 | 15,000.00 | 10,000.00 | 10,000.00 |
| 12,50,001 - 15,00,000 | 75,000.00 | 50,000.00 | 50,000.00 |
| Above 15 Lakh | 83,520.00 | 240,000.00 | 214,500.00 |
| Total Income tax | 366,020.00 | 400,000.00 | 364,500.00 |
| Cess | 14,640.80 | 16,000.00 | 14,580.00 |
| Total taxes payable | 380,660.00 | 416,000.00 | 379,080.00 |
| Net advantage / (disadvantage) vs Old regime | -35,340.00 | 1,580.00 | |
Net advantage / (disadvantage) New v New regime
| 36,920.00 |
As we see from the example, there is an effort to make the New regime more attractive. Especially, the additional deduction on Employer Contribution to NPS to the extent of 4% of Basic Salary, which has gone almost unnoticed, can change the equation quite a bit.
Important: Here, we are taking only 1 out of the 2 - HRA vs Housing Loan Interest. We are aware that there can be instances where both may be available. There could be many such permutations & combinations. Hence the above example should be used as a reference only. We are happy to provide you customized consultations on a case to case basis!
Conclusion (Our view):
After going through (and hopping, skipping a few) these updates, here is our view of this budget:
Looking at the general sentiment and noise, it would be quite easy to say that it is not a good budget. Honestly, being taxpayers ourselves, we would like to get swayed by the same - after all - all of us hate taxes, don’t we!
But, let's take a step back. There is so much in it, for employment generation. So much so that there are direct incentives to both - employers (to create) and employees (to join).
On the complaint about the gap between education and employability - they are taking steps to bridge that. In fact, they are also looking to create financial literacy, so that freshers can take better control of their finances, right from the start.
Tax law simplification is in progress and we are seeing some steps being taken in that direction, in the form of simplification of various compliances, rationalization of tax rates.
Capital Gains calculation - one of the most complex of topics, is being simplified.
We do agree that they might have thought of a more taxpayer beneficial approach, when it comes to rate rationalization, to improve the acceptance of these reforms, but not much can be done about it. This is because there could be many home buyers / investors, who may end up paying more taxes, or having smaller ‘tax losses’ to offset other capital gains. Or of course, the higher taxes on the Equity asset class overall, which has also seen a rise in tax incidence.
New tax regime is being made more attractive as well. We are observing this first hand as we file the ITRs for FY 2023-24, that for a good number of taxpayers, New regime was already beneficial. With current announcements, it becomes even more attractive, though, from FY 2025-26 onwards.
There are various other initiatives across sectors, including major measures to modernize agriculture and enhance the supply chain, or the special mention of ‘Purvodaya’, for the all-round development of the Eastern region etc announced during the budget.
However, we have not gone into much detail about those, in terms of detailed impacts and benefits of these announcements as, being primarily a tax consultancy, focused on individuals / small businesses mainly, our aim is to cover as many taxation aspects as possible.
To conclude, the budget has a few avoidable, not-so-good distractions, which are stealing away the attention from what is otherwise a good, balanced budget.
Phew! It was quite a roller coaster to come up with this analysis, right at the peak of tax filing season ;)
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Footnotes:
Links to Budget Speech, Finance bill,Memorandum.
- Key Budget Highlights / Stats.